(Kitco News) - Although the gold market was unable to hold initial support at $2,400 an ounce this past week, it has managed to maintain a critical bullish trend line above $2,350 an ounce, which, according to some analysts, could create new bullish momentum for the precious metal.
August gold futures last traded at $2,382.60 an ounce, up more than 1% on the day; however, the precious metal is seeing a 0.6% loss from last Friday’s close.
Despite the near-term volatility, analysts note that gold has maintained a solid uptrend as markets increasingly expect the Federal Reserve to cut interest rates by the end of the quarter. According to the CME FedWatch Tool, markets have completely priced in a rate cut in September.
Kelvin Wong, Senior Market Analyst at OANDA, said that he sees gold’s correction as price volatility in a broader uptrend.
“Given that the US Fed is still on a preferred stance of enacting an interest rate cut cycle rather than a hike cycle in the medium-term horizon, and with the real US 10-year Treasury yield still hovering below 2.05% key intermediate resistance, the bias remains bullish for Gold (XAU/USD) with its medium uptrend phase in place,” he said in a comment to Kitco News.
George Milling-Stanley, Chief Gold Strategist at State Street Global Advisors, said that he also expects gold prices to maintain their bullish momentum as it’s clear interest rates are headed in only one direction.
“The Federal Reserve is on track to cut interest rates in September and begin a new easing cycle which will drive the U.S. dollar lower and provide a tailwind for gold,” Milling-Stanley said.
Positive for the precious metal, markets continue to aggressively price in a rate cut by the end of summer even as inflation remains above the central bank’s 2% target. The U.S. Department of Commerce said its core Personal Consumption Expenditures price index in the last 12 months rose 2.6%, unchanged from last month.
Economists have said that the latest inflation data does not stop the Federal Reserve from cutting rates in September. There are growing expectations that the central bank will at least lay the groundwork for a September cut at next week’s meeting.
“The Committee's prepared forward guidance will prove key for setting up the stage for the start of the easing cycle. While Powell is likely to fall short of fully committing to a rate cut in September, he is likely to hint that the Fed's almost there,” said fixed-income analysts at TD Securities.
While the Federal Reserve’s monetary policy meeting will be the main economic event next week, it will share the spotlight with the U.S. Labor Department as July nonfarm payroll numbers will be released Friday.
Along with cooling inflation, economists expect that slowing momentum in the U.S. labor market will prompt the Federal Reserve to ease interest rates before the end of the year.
The Federal Reserve is not the only central bank to hold a monetary policy meeting next week. The Bank of England will release its interest rate decision on Thursday, with analysts expecting to see a cut. Meanwhile, the Bank of Japan will hold its monetary policy meeting late Tuesday.
Economic data to watch:
Tuesday: US Consumer Confidence; JOLTS Job Openings; Bank of Japan monetary policy decision
Wednesday: ADP Nonfarm Payrolls; US Pending Home Sales,
Thursday: Bank of England monetary policy decision; weekly U.S. jobless claims, ISM Manufacturing PMI
Friday: U.S. Nonfarm Payrolls
