Gold Prices Experience Turbulence Amid Fed Comments and Market Expectations
Spot gold prices experienced significant fluctuations, soaring to nearly $2,387 per ounce before retreating sharply, briefly dipping below the $2,370 mark. The precious metal eventually closed at $2,371.04 per ounce on Wednesday, marking a 0.32% increase for the day.
Earlier in the day, gold prices hit an intraday high of $2,386.70 per ounce ahead of Federal Reserve Chairman Jerome Powell's speech. However, after Powell stated that neutral interest rates have risen, at least in the short term, gold prices retracted nearly half of the day’s gains, falling as low as $2,369.88 per ounce.
Powell's remarks indicated that the current monetary policy is restrictive and that the neutral interest rate has risen. Institutional analysts suggest that higher neutral rates imply higher long-term policy rates. Powell emphasized that the policy rate has remained high longer than initially expected due to the slow response of inflation and the labor market.
Despite Powell's strong stance on the neutral rate, New York Fed President John Williams maintained that the neutral rate has not increased. Powell reiterated the necessity for more positive data to support a loosening of monetary policy.
Regarding inflation, Powell expressed a lack of confidence that inflation is sustainably moving towards the 2% target. He noted that inflation expectations are around 2% and suggested that the Fed doesn’t need to wait for inflation to fall to 2% before starting to cut rates.
The CME's "Fed Watch" tool indicates a 75% probability that the Fed will cut rates in September and again in December. Market attention now turns to the upcoming U.S. CPI and PPI data releases, which are expected to provide further insights into inflation trends.
Jim Wyckoff, Senior Market Analyst at Kitco, noted that if the upcoming inflation figures show a cooling trend, gold and silver markets are likely to continue their sideways and upward movements.
Christian Borjon Valencia, Analyst at FXStreet, highlighted that investors are focusing on the U.S. inflation data for June, set to be released on Thursday, along with U.S. Initial Jobless Claims and University of Michigan Consumer Confidence data.
Valencia observed that despite the bearish pattern following the break of the neckline in the head-and-shoulders pattern, gold prices have resumed their uptrend, though they have not yet reached the weekly high of $2,391 per ounce achieved on Monday. The Relative Strength Index (RSI) remains bullish above the 50-neutral line, indicating upward momentum.
Valencia suggests that the path of least resistance for gold prices is upwards, with the first resistance level at the July 5 high of $2,392 per ounce, followed by $2,400 per ounce. If gold continues to rise, the next resistance levels are the year-to-date high of $2,450 per ounce and the $2,500 per ounce mark.
Conversely, if gold prices fall below $2,350 per ounce, they could decline to the $2,300 per ounce level. Should that support fail, the next support areas are the May 3 low of $2,277 per ounce and the March 21 high of $2,222 per ounce.
