(Kitco News) - Hotter-than-expected producer prices weren’t able to cool down the gold market. Prices look to end their second week above $2,400 an ounce, with analysts looking for a potential move to a fresh all-time high.
Gold prices ended the week in neutral territory compared to last week; however, they remain down nearly 1% from their all-time highs.
August gold futures last traded at $2,421 an ounce, unchanged on the day and only 90 cents down from last week.
While Friday’s Producer Price Index did take some momentum away from gold, the precious metal was able to hold critical support at $2,400 an ounce. For some analysts, this is a strong indication that gold’s consolidation phase is coming to an end.
Gold is seeing fresh bullish momentum following relatively dovish comments from Federal Reserve Chair Jerome Powell, coupled with weaker-than-expected inflation in the Consumer Price Index. Core CPI, which excludes volatile food and energy prices, rose 3.0% in the last 12 months. Annual inflation rose at its slowest pace since April 2021.
Meanwhile, in his two days of testimony on Capitol Hill, Powell warned Congress that risks to the economy are balanced. “Elevated inflation is not the only risk we face,” Powell said in his prepared remarks.
Robert Minter, Director of ETF Strategy at abrdn, said that these two factors have given gold the invitation it has been waiting for to rally.
Minter added that with a slowing labor market, the Fed needs to act now before it is caught even farther behind the eight ball.
“There is a strong case for a September rate cut,” he said. “If you look at how high consumer debt is, it's not going to take much labor market stress to cause real problems in the economy. I don’t think we are going to see a recession, but that all depends on the Fed. They are a little late, but not fatally late, to do something.”
According to the CME FedWatch Tool, markets see more than a 90% chance of a rate cut in September.
Naeem Aslam, Chief Investment Strategist at Zaye Capital Markets, said that at this point, a September rate cut is a done deal. Although next week will see the release of some important economic reports, some market analysts don’t expect any of the data to materially change market expectations, which should continue to support gold’s new momentum.
Carsten Fritsch, Commodity Analyst at Commerzbank, is also looking for gold to hit an all-time high next week.
“An interest rate cut in September is now almost fully priced in, and another one by the end of the year. The price of gold could therefore return to its all-time high from May in the coming days,” he said in a note Friday.
Although all eyes are currently on the Federal Reserve, economists will shift their focus next week to the European Central Bank, which will announce its interest rate decision Thursday. Markets are expecting the ECB to keep rates unchanged after cutting in June.
However, the question remains if the central bank will keep the door open for another rate cut in September.
While a dovish stance will weaken the euro against the U.S. dollar, creating a potential headwind for gold, analysts note a bigger trend in the marketplace. Falling global interest rates are bullish for gold as opportunity costs drop.
This week, the World Gold Council noted that investment demand picked up in Europe last month, coinciding with the rate cut.
In North America, the biggest report on the docket is the June retail sales data. Economists note that any further weakness in consumption will add to Fed rate cut expectations.
Weekly Economic Data to Watch
Monday: Empire State Manufacturing Survey, Powell speaks at the Economic Club of Washington DC
Tuesday: U.S. retail sales
Wednesday: U.S. housing starts and building permits
Thursday: ECB monetary policy decision, weekly jobless claims, Philly Fed survey
