Gold prices gained traction earlier this week after the U.S. dollar index weakened from its temporary gains and crude oil prices rallied. The precious metal may have seen early session lulls over the past few weeks, though recent price gains prove the dip was only temporary. As of June 5, gold gained $6 per ounce, bringing it to $1,975.50.
European and Asian stock markets remained mixed earlier this week as the U.S. stock market trended on a similar level. The precious metals market saw modest gains following the release of May’s U.S. non-farm payrolls employment report. Friday’s report released a rise in figures, shocking market predictions, which expected another disappointing month after the last few consecutive dips.
The latest employment data release provided a critical reminder to analysts and investors alike: the Federal Reserve will likely stick to its hawkish strategy regarding the monetary policy given recent successes. Even if we see a rate-hike pause during June’s Federal Reserve meeting, many expect more aggressive rate hikes in the near future. Whether or not the previous aggressive rate hikes actually gave rise to the job report figures remains unclear.
If these factors weren’t enough to send investors’ heads spinning, another major hit entered the market earlier this week when Saudi Arabia decided to cut oil production. The nation plans to cut its production of crude oil by as much as 1 million barrels per day. The plan will begin in July.
At the same time, OPEC+ decided to maintain its current crude oil output levels. If you remember, back in May, OPEC+ announced a similar oil cut as Saudi Arabia, causing numerous ripples across global economies. In July, the cuts will just come from Saudi Arabia rather than all OPEC+ organization members (Algeria, Angola, Gabon, Equatorial Guinea, Iran, Iraq, Libya, Kuwait, Nigeria, the Republic of the Congo, Saudi Arabia, the United Arab Emirates, and Venezuela).
With these decisions, the U.S. dollar index remained steady in key outside markets earlier this week as NYMEX crude oil prices traded much higher. Prices reached a high point of $72.75 per barrel, while the ten-year U.S. Treasury note yield presented at 3.887%.
Gold futures bulls maintain the near-term technical advantage, with the next upside price objective being a $2,000-per-ounce solid resistance. Downside technical support on the bear’s side would be pushing a low of $1,949.60 per ounce. The current first resistance has hit $1,985 per ounce before $2,000, while the daily low support earlier this week first hit $1,953.80 per ounce, then $1,949.60 per ounce.
Moving forward, analysts and investors can continue monitoring Federal Reserve strategies as we await June’s decision. Most expect a rate pause for June following Jerome Powell’s previous statements, though only time can tell for certain.
Powell explained in the last Fed gathering that the committee would now decide on a case-by-case basis on if and when to hike rates rather than doing so automatically. In previous comments, he hinted toward future pauses to calm the stirred-up economy after such aggressive actions in the first quarter. After this announcement, gold immediately shot up to $2,055 per ounce, the highest price it’s been all year.
“For gold, we are going to see more optimism that the Fed is done,” Edward Moya, a senior market analyst for OANDA, explained in an interview with Kitco News. “The Fed seems likely to pause their tightening cycle, and if the updated forecasts remain optimistic that inflation will get a lot closer to target, it could be good news for gold bulls. Gold volatility should be elevated as prices could break out of the $1,950 to $2,000 trading range.”
As we attempt to predict gold prices, all eyes will remain fixed on Federal Reserve actions to better understand how the economy will perform in the coming months. High interest rates typically equal lower demand, though paused rate hikes offer higher gold prices.
“We expect the Fed to leave interest rates unchanged at next week’s FOMC meeting but, in what could be characterized as a ‘hawkish skip,’ to signal via forward guidance that officials are minded to hike interest rates again, probably at the following meeting in late-July,” Paul Ashworth, the chief North American economist at Capital Economics, explained. “The recent resilience of employment and stickiness of core inflation will ensure that the Fed delivers that rate hike as planned next month.”
Despite Ashworth’s confidence, predicting Fed actions can still sometimes feel like a guessing game. As always, investors should consult their financial advisors before making any portfolio decisions.