After closing in the positive area the previous week, gold gained further bullish momentum on Tuesday, reaching a historic high of $2483.75. However, profit-taking and a rebound in the US dollar due to worsening market sentiment led to a sharp sell-off in the second half of the week. The Fed's next policy meeting is scheduled for July 30-31, and the Fed will maintain a silent period for the two weeks leading up to it. In terms of data, market participants will closely monitor next week's US GDP and Personal Consumption Expenditures (PCE) Price Index.
On Friday (July 19), spot gold closed at $2400.40, down $9.08 or 0.38% for the week.
(Spot gold weekly chart, source: FX168)
Gold fell back after hitting a historic high
At the beginning of the week, gold fell slightly as investors reacted to disappointing economic data from China. China's economic data showed that the annualized GDP growth rate in the second quarter was 4.7%, lower than the 5.3% in the first quarter and lower than the market expected 5.1%. China's other data showed that retail sales in June increased by 2% year-on-year, lower than analysts' expected 3.3%. Later that day, Fed Chairman Powell said that three better inflation data showed further progress in the second quarter and strengthened their confidence. Powell reiterated at the Economic Club of Washington that they would base their policy on each meeting. The difficulty in demand for the US dollar allowed gold to close slightly higher on Monday. #Weekly market review#
On Tuesday, the sharp drop in US Treasury yields boosted gold prices. With the benchmark 10-year US Treasury yield falling to its lowest level since March, close to 4.15%, gold prices rose and hit a historic high of $2483.75 during Asian trading on Wednesday. In the absence of high-level data, the decline in US Treasury yields seems to indicate that the market has fully digested the Fed's rate cuts in September.
After the record-breaking rise, profit-taking led to a correction in gold prices in the second half of Wednesday's trading day. On Thursday, after the European Central Bank did not deny the rate cut in September, the US dollar attracted capital outflows from the euro, leading to a continuation of the correction trend in gold prices.
The deteriorating risk sentiment provided additional support for the US dollar in early Friday trading, leading to a decline in gold prices. In the US market, gold fell nearly 2% during the day and fell to the $2400 range, shifting from a rally to a fall this week.
Gold investors are focusing on key US data next week
Next Wednesday, the Standard & Poor's Global Purchasing Managers' Index (PMI) will become an important economic calendar data in the US. The composite PMI in June was 54.8, indicating healthy expansion of private sector economic activity. If the index is below 50, it means economic contraction in July, which may raise expectations for multiple Fed rate cuts later this year and put pressure on the US dollar again. If the data remains stable above 50, the market's reaction may remain moderate.
The Bureau of Economic Analysis (BEA) will release the initial GDP growth for the second quarter. The market expects the US economy to grow at an annual rate of 2% in the second quarter after recording 1.4% growth in the first quarter. If GDP growth exceeds 2%, the US dollar may be immediately boosted, leading to a decline in gold prices. Although such data is unlikely to change expectations for a Fed rate cut in September, it may reduce the possibility of multiple rate cuts and help the US dollar accumulate strength. According to the Chicago Mercantile Exchange's Fed Watch Tool, the market currently believes that there is over a 50% chance that the Fed will cut interest rates by 75 basis points in 2024. On the other hand, disappointing growth data may make it difficult for the US dollar to find demand.
On Friday next week, the Bureau of Economic Analysis will release the Personal Consumption Expenditures (PCE) Price Index for June. As Thursday's GDP report will include quarterly PCE price indices and core PCE price indices, monthly data is unlikely to produce any surprises. In the first quarter of this year, the Fed's preferred inflation gauge, the core PCE price index, rose 3.7%, up from 2% in the fourth quarter of last year. If this data falls sharply and coupled with weak GDP data, it may open the door for another rise in gold prices.
Alex Kuptsikevich, senior market analyst at FxPro, said that the synchronous correction of gold and US stocks is not a good sign for precious metals.
"After hitting a new high, the pullback is a typical pattern for gold in recent months, similar to the declines in May, April, March and December. After the high point comes the pullback, which disappears in about two weeks, causing prices to stabilize and rise again," he said. "However, the bull market will not last forever, and traders should watch for signs of a reversal of the bullish trend."
"Next week could decide the momentum for the next few months. A drop of more than 3% next week may repeat the pattern of 2020 and 2022, and experience a long-term adjustment lasting more than six months. The most worrying thing is the replay of the 2011 pattern, when the gold price fell 20% within four weeks after hitting a high of $1921. This peak was not rewritten until 9 years later, when the value of each ounce of gold almost halved from the global peak to the global trough, plummeting for more than four years," Kuptsikevich added.
Analysts point out that gold currently has a strong correlation with interest rate expectations. The rise in gold to a historical high is in line with market expectations that the Fed will launch a loose cycle in September.
According to the Chicago Mercantile Exchange's Fed Watch Tool, the market expects a more than 90% chance of a rate cut at the end of the summer.
James Stanley, Senior Strategist at Forex.com, said that the only factor that could disrupt the upward trend in gold would be rising inflation, which would lead investors to question possible rate cuts. Although this situation is unlikely to occur, he said that there is still a risk.
Next week's popularity survey
The latest Kitco News weekly gold survey shows that Wall Street has returned to a balanced position, while retail investors remain optimistic about next week.
This week, 16 Wall Street analysts participated in the Kitco News gold survey, which showed that the prospects for precious metals are balanced and uncertain. Six experts (38%) predict that the price of gold will rise next week, and another six predict that the price will fall. The remaining four analysts believe that the price of gold will consolidate next week.
At the same time, Kitco's online voting had 168 participants, and ordinary investors are still bullish, but expectations have declined from last week. 103 respondents (61%) expect the price of gold to rise next week. Another 36 (21%) expect the price to fall, while 29 respondents (17%) believe that the price will fluctuate within a range next week.
(Image source: Kitco News)
"Unchanged," said Adrian Day, president of Adrian Day Asset Management. "The price of gold may need to consolidate before rising again. However, the additional signs of the Fed's start of a rate cut cycle may push up the price of gold at any time."
Darin Newsom, senior market analyst at Barchart.com, believes that the price of gold will continue to fall in the short term.
"I still believe that gold is in a medium-term downtrend on the weekly chart," Newsom said. "Looking at the more active December futures contract, if the closing price is below last Friday's settlement price of $2469 per ounce, it will end the three consecutive weeks of weekly highs, which is in line with normal technical patterns. The weekly stochastic indicator is still neutral, which means that the December futures still have time and space to fall. I expect the December futures to test the previous low of around $2350 per ounce."
Adam Button, the director of foreign exchange strategy at Forexlive.com, said, "Neutral." "The market has shown impressive resistance to the news that China has suspended purchases (at least temporarily), but profit-taking before the weekend will be difficult to reverse. The focus is on U.S. politics."
"Gold may have a double top," said Mark Leibovit, VR Metals/Resource Letter. "I have been cautious and occasionally hedge against gold and silver ETFs against the trend. Although I expect a long-term price of $2700 per ounce, it may fall to $1900-2000 per ounce in the short term."
"As usual, one foot a day," Leibovit added, "There are currently no precious metal positions, and all were sold a few days ago."
Analysts at CPM Group recommend that investors wait and see next week, warning that the drop in price of $92.7 per ounce in the past two days may occur again in the coming days or weeks, not only during the fall, but also during the rise.
"If the price closes below $2400 per ounce on Friday, July 19th, the sell-off at the settlement on Monday may be heavy," they said, "Or if there are more bad news in politics, the price may soar again."
CPM believes that the price trend in the next two weeks tends to decline, but the prospects thereafter tend to rise. "In such a turbulent environment, prices may fluctuate significantly and may test $2300 per ounce. Any downside risk may be short-lived, and investors will use the price weakness as a reason to buy gold to hedge against many risks." They said.
Bob Haberkorn, senior commodity broker at RJO Futures, said that although Friday's weak price looks significant, it will not affect the medium-term appeal of gold.
"Our callback this morning is quite significant," he said, "But I think, from a news perspective, nothing has really changed. Bond futures fell, but rates were quite significant and they rose here, and the dollar also strengthened."
"I think what you see is just a shake-up of some weaker bulls this week, which is an overreaction," Haberkorn said. "What I mean is we tested $2400 per ounce, and the low point of the August contract was $2395 per ounce. I think overall, this is just a fluctuation of weaker bulls, and concerns about weakening demand in China."
Haberkorn expects that gold will not fall for a long time. "I think this downward trend will be short-lived, and you will see that this is a buying opportunity," he said. "I have not seen any comments from the Federal Reserve on interest rates or statements that they will not lower rates, which can prove that this trend is reasonable."
"The geopolitical situation has not changed this week," he added. "If there is a change, the geopolitical outlook will become even more dangerous, as well as the US election. Then there was news about some attacks within Israel last night, as well as the ongoing situation in Europe and Ukraine."
Regarding the recent turmoil surrounding the US election, Haberkorn said he did not think Biden's withdrawal would have a substantial impact on precious metals. "I don't think if he withdraws, it will have an impact on anyone or the market, and it will not affect the price of gold or silver," he said. "If there is an impact, it will be an unknown quantity. Will they choose Harris or the open representative conference in Chicago two weeks later? There are many unknowns, but I think many are known."
"I think if he withdraws, it will not have an impact on anyone or the market, and it will not affect the price of gold or silver," he said. "If there is an impact, it will be an unknown quantity. Will they choose Harris or the open representative conference in Chicago two weeks later? There are many unknowns, but I think many are known."
Haberkorn believes that the Federal Reserve and interest rate expectations are currently the main factors driving gold. "I think if Biden withdraws, it will be a big event, but I do not think it will affect gold. This will not be a direction to change the rules of the game."
Gold Technical Outlook
(Source: FXStreet)
Technically, FXStreet analyst Eren Sengezer pointed out that on Friday, the relative strength index (RSI) on the daily chart fell below 60, highlighting the loss of bullish momentum.
Gold faces a key support area between $2405 and $2400, where the 38.2% Fibonacci retracement level and psychological levels in the July uptrend meet. If the gold price falls below this level and begins to use it as a resistance level, technical sellers may take action to pave the way for the next stage of decline to $2385 (Fibonacci 50% retracement level) and $2375 (20-day simple moving average).
In the upward direction, the initial resistance is at $2430 (23.6% Fibonacci retracement level), and the larger resistance is at $2460 (static level). If broken, it will further test $2483 (historical high point).
Economic data worth paying attention to next week
Tuesday: US Existing Home Sales
Wednesday: Bank of Canada Monetary Policy Decision, PMI Initial Value, New Home Sales
Thursday: US Q2 GDP Growth Initial Value, Durable Goods Orders, Weekly Initial Claims for Unemployment Benefits
Friday: US Core PCE Price Index, Personal Income and Expenditure