Gold prices continue to edge up, breaking the $2,000-per-ounce line yet again last week and sustaining it through Monday as traders anticipate the upcoming Federal Reserve meeting. On Wednesday, the U.S. central bank will decide on the next rate hike or pause, though given recent economic conditions, many are beginning to bet on either a pause or hints toward the end of the hiking cycle. Less hawkish actions from the Fed mean positive performance from gold, hence its excellence strength above critical lines late last week and Monday.
Gold futures closed July 6 at a modest $1,915 per ounce. Last Monday, the precious metal hit $1,956 per ounce before skyrocketing to $2,019 per ounce by Wednesday. We’re seeing the strongest weekly gains since April amid a shifting marketplace consensus over what the Fed will do regarding interest rates.
Last week alone, bullion gained 0.3%, while gold futures rose 1.26% in the last month.
The U.S. central bank won’t be the only one releasing critical information at the end of this week, either. The Bank of Japan and the European Central Bank each plan to gather on Wednesday to discuss similar affairs, releasing interest rate decisions by Friday, just like the Federal Reserve. Traders can expect significant market ramifications on a global level coming at the end of this week.
Current marketplace estimates place a quarter-point hike for the U.S. Federal Reserve and European Central Bank for July. A quarter-point hike may not sound like cause for celebration for gold investors, but it’s general committee attitudes that matter most. Analysts are beginning to see this 25-basis point hike as one of the last, which means gold will gain its perfect environment for accelerating throughout the remainder of the year.
High interest rates create increased opportunity costs for investing in gold. While gold may work as an ideal inflation-hedging tool during such periods of economic turmoil, investors often turn away from the asset when interest rates spike. If we see a drop, pause, or end to interest-rate hiking, gold can experience higher investor demand rates.
As of right now, the main focus for gold traders is on remarks made by the U.S. Federal Reserve Chair Jerome Powell and European Central Bank President Christine Lagarde. Many expect to hear comments indicating the end of the rate-hiking cycle, with the finish line as early as September. Marketplace estimates for a rate hike in September have already dropped significantly.
Last month’s meeting offered decent insight regarding the U.S. central bank’s reasoning skills. In June, the Federal Reserve chose to pause rates after a nearly unanimous decision to wait until committee members could assess the economy’s situation further. As we enter July, characterized by eased inflation rates and surprising labor market figures, the Federal Reserve may finally have the evidence it needs now to call it quits on the rate-hiking cycle.
“We think that there is a clear understanding among market players that next week the Fed will fire the last bullet from its gun — from there onwards, conversations will only be about the ongoing pause and a possible rate cut taking place. We believe all of that will be highly positive for the gold price,” Naeem Aslam, the chief investment officer at Zaye Capital Markets, explained.
Just last week, James Stanley, a market strategist at StoneX, made a few bold predictions of gold reaching the $2,000-per-ounce line in as quickly as “a day or two.” At the time, that level of price gain may have seemed enormous, though the precious metal clearly achieved Stanley’s predictions by last Wednesday. If the Federal Reserve meeting plays out in gold’s favor and the precious metal can continue gaining at this rate, we could see a yearly high on the table.
China’s Politburo will come this week as well, though most analysts do not expect a significant outcome. However, physical gold continues to sell at high prices in China. As far as the Bank of Japan, the marketplace anticipates a continuation of the current policy.
The world’s largest ETF, SPDR Gold Trust, recently announced that its holdings increased by 0.57% to 919 tons on July 21 from 913.8 tons the day prior. As similar exciting gains continue occurring across gold assets, the trend becomes clear: more people are buying into gold as interest rates are expected to drop.
With that being said, all we can do now is await Wednesday’s meeting. As always, investors should consult their financial advisors before making any portfolio decisions.
