US inflation data showed a continued decline, prompting Gold prices (XAU/USD) to resume their upward movement above $2,400 on July 15th. Federal Reserve Chair Jerome Powell signaled a dovish stance last week, acknowledging that inflation is slowing alongside a cooling labor market.
On the same day, at 1:40AM GMT, spot gold saw a modest 0.1% rise to $2,423.89 per ounce . On Monday, 15 July, prices reached their highest level since May 20th, when they peaked at $2,449.89. Meanwhile, the most actively traded SHFE gold futures contract, set to expire in October 2024, increased by 1.30% week-over-week to $2,224.57 per ounce.
As Powell continues to suggest a potential rate cut in September, here is what to expect for how Gold prices may behave in the weeks ahead.
Economic Data
According to Powell's remarks, inflation has notably decelerated and there are indications of a cooling labor market. He emphasized that excessively delayed or premature policy adjustments could unreasonably weaken economic activity and employment. The Fed may not necessarily wait for inflation to drop below 2% before acting. Following Powell's speech, expectations for an interest rate cut have risen in the market, leading to a decline in the dollar.
During the week of July 8th, several key economic data points were released, with inflation data being particularly noteworthy. US Consumer Price Index (CPI) for June showed a year-on-year increase of 3%, marking its lowest level since June last year, slightly below the expected 3.1% and down from the previous 3.3%. Core CPI, excluding volatile food and energy prices, rose 3.3% year-on-year in June, slightly below the expected 3.4%. In contrast, US Producer Price Index (PPI) rebounded, rising 2.6% year-on-year in June, surpassing expectations of 2.3% and up from the previous 2.2%. Despite the moderation in inflation figures, confidence in the economy remains subdued. The US one-year inflation forecast for July was revised to 2.9%, in line with expectations, compared to June's final rate of 3.0%.
Market Outlook
The near-term outlook for gold appears cautiously optimistic, despite nearing resistance levels. The direction of gold will likely be influenced by upcoming Federal Reserve statements and economic data releases. Disappointing retail sales figures could strengthen expectations of rate cuts, providing support for gold prices. Traders should stay attentive as economic indicators, Fed policy outlooks, and geopolitical developments continue to impact gold's performance in the short term.
According to a recent report from Citi Analysts, Gold prices might surge to $3,000 per ounce. The bank says that the weakening US labor market, coupled with a broader trend of disinflation and a notably soft June CPI print, strengthens the argument for a dovish pivot by the Federal Reserve at the upcoming July FOMC meeting.
Citi's analysis highlights the impact of previous Fed cuts on precious metal prices, noting that "median log returns for precious metals, annualized, were 13% in the 6-month period following the first Fed cut" across the past four cycles.
Citi concluded that the super-contango in the curve has likely suppressed the build in longs for the first half of 2024, but a higher price and higher volatility environment towards the end of the year would encourage fresh length to be added.
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