What is Next For Gold Price?
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
Gold prices have been trading lower for the past three weeks, and the prices have started the week on the back foot once again. The gold price is getting close to an important support level, and traders are asking themselves if the price breaks this critical support level and what will be next for the price.
Gold prices have started to trade lower after they made a high of $2079 in April this year. At the time, most traders were thinking that trading gold was the best option, as there was a lot of risk in the market in relation to the meltdown in the US banking industry. However, the contagion fear didn't materialise fully, and the crisis in the US banking system was stopped and controlled well ahead of a major disaster.
What is The Focus Now?
Now gold traders are more focused on one thing, which is what the Fed will do with its interest given that inflation has been tamed. Last week, we had a fresh reading of the US CPI, and the main concern among traders was that US inflation was going to spike up due to higher oil prices. But in reality, when we saw the US CPI reading print a number that was below expectations, traders became a lot more optimistic about the overall situation. In terms of gold trading, this meant that the Fed is unlikely to change its narrative on its current monetary policy, and market sentiment may be right that there may be just one more rate hike, if there is one, which will take place in November this year.
Although I continue to think that the Fed is very much done with its interest rate and is unlikely to increase it, especially if inflation doesn't shoot above market expectations, This means that the dollar index is likely to move lower, which should be positive for the gold price.
The Price Action
Speaking purely from a price action perspective, gold traders are mainly focused on the critical level of $1,900. The gold price is certainly inching closer to that level, and the fear is that if the price breaks this price point, we may see a sharp sell off. I think that there are chances that the price may violate the support level of 1,900, which will open the room for the next support level of 1,850. However, given that we have the Fed Minutes due this week, I think the tone is going to be somewhat dovish, as some members of the Fed have already started to state that the interest rate in the US is already at a peak level. Any dovish or less hawkish comments could provide support for the price, which means if the price violates the 1,900 price level, we would see many traders see that as an opportunity to bag some bargain
To summarise, I think the fundamentals favour that gold prices are unlikely to experience any serious meltdown, and there are odds in favour of dollar weakness coming, which should support the gold price.