(Kitco News) - After a brief consolidation period, gold continues to push higher into uncharted territory and may have room to rise further, according to some analysts.
Spot gold prices are currently trading near session highs, last priced at $2,553.11 an ounce, up 1.64% on the day. Simultaneously, gold is also trading near new highs against the euro, last valued at €2,313.55, up 1.70% on the day.
According to price action trends, gold began moving against the euro before momentum picked up against the U.S. dollar. Gold remains an attractive global currency after the European Central Bank (ECB) announced it would lower its deposit facility rate by 25 basis points to 3.50%. Meanwhile, interest rates on the main refinancing operations and the marginal lending facility will decrease to 3.65% and 3.90%, respectively.
“There are no early technical signals suggesting that a market top is imminent. Gold is gaining in U.S. dollar terms, euro terms, and other currencies as well. Expectations of lower global interest rates are reducing government bond yields, which is positive for gold, as it bears no yield,” said Jim Wyckoff, Senior Market Strategist at Kitco.com.
ECB President Christine Lagarde emphasized that the central bank is keeping all options open, as it remains data-dependent. She added that she will not commit to any specific monetary policy direction at this stage.
However, with broad inflationary pressures continuing to ease and growth slowing more than anticipated, many analysts expect further rate cuts later this year.
Andrew Kenningham, Chief Europe Economist at Capital Economics, noted in a report that he expects gradual easing, with the next rate cut likely in December.
“The policy statement and press conference were largely as expected and do not change our view that the next rate cut is most likely to come in December – although October looks to be a close call,” he said. “We continue to think the ECB will leave its deposit rate on hold until December, when it will lower it to 3.25%, and eventually cut it to 2.5% by the second half of next year.”
This is the second time the ECB has cut interest rates, and although it is ahead of the Federal Reserve, analysts note that the U.S. could still catch up, which would be positive for gold.
Markets have fully priced in a 25-basis point cut following the Federal Reserve’s monetary policy meeting next week.
Analysts suggest that the ECB’s easing cycle sets a precedent for the Federal Reserve, meaning global real interest rates will likely continue to fall, supporting gold prices.
James Stanley, Senior Market Analyst at Forex.com, stated that although he doesn’t track gold in euro terms, the trend is clear. He added that while the ECB cut rates before the Fed, the two central banks are moving in tandem. Given inflation is a major issue for everyone globally, Stanley noted that central banks can't afford to let others gain the upper hand.
“Central bank easing is the reason we haven’t seen gold look back since its breakout in October,” he said. “Central banks move together because they can’t afford to lose control of their currencies. A strong U.S. dollar means higher inflation in Europe and vice versa. Gold becomes the clear winner as both the dollar and euro weaken simultaneously.”
While Stanley believes gold can go higher, he does not recommend chasing the market at current levels. He added that he would consider taking a significant short position.
“We haven’t seen a major correction in this market since last year’s breakout, and I don’t expect one anytime soon, as the market continues to make higher lows,” he said. “However, I’m looking for a pullback to see if we find support at previous resistance levels, such as $2,527 or $2,531.”
Marc Chandler, Managing Director at Bannockburn Global Forex, noted that the prospects of falling rates, a weaker dollar, and continued geopolitical tensions favor gold. He added that a push to $2,600-$2,700 seems reasonable this year.
