As more expect the Federal Reserve to end its rate-hiking cycle after July’s meeting, gold has gained excellent momentum from its investor demand sector. The potential for a drop in interest rates is exactly what the precious metal needed to thrive following a few weeks of price lulls. As we approach the upcoming meeting, gold will reach a few key resistance points, testing whether we’re at the start of seeing prices creep above the $2,000-per-ounce line again, as they were in the first quarter of the year.
With this shift in the market consensus surrounding Federal Reserve strategies, gold just reached its seven-week high. Futures rates have increased by 1.2%, closing on July 18 at $1,980.80. Last week, the precious metal enjoyed its highest weekly gain since April.
Some analysts predict that this rise, combined with the expected market conditions, could be exactly what gold needs to sit above $2,000 per ounce again. The last time gold spiked above this line, reaching its highest price point for the year of $2,055 per ounce, was in mid-March, immediately following the collapse of SVB Financial and the start of the banking crisis. At this time, the Federal Reserve pulled back from its aggressive rate-hiking strategy after realizing an over-correction had occurred.
Such events allowed gold to gain the most it had all year. Between distrust in traditional banking institutions and the less hawkish monetary policies, investors flocked toward gold. If July’s Federal Reserve meeting plays out the way many hope that it will, we may see similar effects.
According to Julia Cordova, the founder of Cordovatrades.com, gold’s performance rates are currently showing bull-flag patterns. If the precious metal can close the week around $1,973 per ounce, it may be on track to achieving the $2,000-per-ounce goal relatively soon.
Following this resistance level, the next peak traders should keep their eyes on would be $2,017 to $2,020 per ounce, according to Cordova. She believes this level may arise as soon as next week, considering the Federal Reserve’s meeting will occur next Wednesday.
According to James Stanley, a market strategist at StoneX, gold bulls are dominating the marketplace right now. He agrees with Cordova’s point that the $2,000-per-ounce line will be the largest determining factor in gold’s next move.
“It might take another day or two, but the momentum and the sentiment are there,” Stanley explained.
The marketplace currently expects a 25-basis point rate hike from the Federal Reserve after July’s meeting. A hike rather than a pause may not seem like good news for gold, though it’s not this month’s outcome that truly matters here; it’s what will come next.
Analysts are beginning to agree that July’s meeting may mark the end of the long, aggressive rate-hiking cycle. If this is true, July’s meeting should reveal critical insights regarding August and September’s plans. Marketplace estimates regarding a rate hike in September have already dropped significantly, meaning people believe July will end it all.
Stanley believes that the weak U.S. retail sales numbers that shocked the marketplace are likely one of the biggest contributing factors here. U.S. retail sales increased by 0.2% last month after May’s revised 0.5% increase based on the U.S. Commerce Department data. Marketplace estimates placed a 0.4% rise on last month’s figure, though the data said otherwise.
The chief North American economist for Capital Economics, Paul Ashworth, believes these figures depict the beginning of what could be a long-term drop in consumer consumption rates, which will likely weigh heavily on the economy.
With excess savings all but eliminated, the impact of higher interest rates and tighter credit condition gradually feeding through, and student loan repayments scheduled to resume, we would argue consumption growth will continue to underwhelm in the second half of this year,” he explained.
Naeem Aslam, the chief investment officer at Zaye Capital Markets, agrees that July’s Federal Reserve meeting should mark the end of the rate-hiking cycle. Aslam predicts that this event will positively support gold prices.
“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,” Aslam explained.
Moving forward, traders can keep their eyes on next Wednesday’s meeting and gold’s response to it in terms of the critical support lines outlined above. As always, investors should consult their financial advisors before making any portfolio decisions.