(Kitco News) - The gold market might be stuck in neutral, but its ability to hold support around $3,300 shows some impressive resilience, according to some analysts.
Gold is on track to end the week roughly where it started, maintaining solid support above $3,300 an ounce. Spot gold last traded at $3,352.47 an ounce, down 0.09% from last Friday.
However, downside risks are building as the U.S. dollar looks set to finish the week near its highest level in three weeks.
Aaron Hill, Chief Analyst at FP Markets, said the U.S. dollar has been supported by improving economic data and relatively elevated inflation.
“With the Fed signaling caution—only two rate cuts projected for 2025—gold’s appeal as a non-yielding asset takes a hit when real yields climb, like the recent jump to 2.14%,” he said. “If the dollar keeps grinding higher, especially with Trump’s trade policies stirring the pot, gold could face a sharp correction, potentially dipping below $3,000.”
Christopher Vecchio, Head of Futures Strategies and Forex at Tastylive.com, noted that long gold and short dollar has been a crowded trade for the last couple of months. This presents some short-term risks, as investors take profits in gold and cover short positions in the greenback.
Despite the lack of upside momentum in gold, Vecchio said he sees limited downside in the near term.
“Gold’s actually performing quite admirably,” he said. “It is surviving a regime of higher Treasury yields and a stronger U.S. dollar.”
Although gold is stuck in neutral against the U.S. dollar, Vecchio pointed out that it continues to perform well against other currencies such as the euro, British pound, Canadian dollar, and Australian dollar.
“Gold’s inability to rally may be a function of its dollar denomination more than a sign that gold itself is out of favor,” he added.
Naeem Aslam, Chief Investment Officer at Zaye Capital Markets, said the U.S. dollar is finding some support as the Federal Reserve is expected to maintain its neutral stance through the summer.
“Unless we see economic numbers falling off a cliff, it is difficult for the Fed to cut rates, which means the dollar is more likely to grind higher—and this isn't the best bull case scenario for the shiny metal,” he said.
Although gold could face some downside pressure next week, Vecchio said it is difficult to see a significant drop in prices. He expects gold to hold support at $3,200 an ounce.
“I don't know why, in the current environment, traders would be incentivized to dump gold, given the obscene amount of central bank reserve buying and all the geopolitical uncertainty still in play,” he said.
Lukman Otunuga, Senior Market Analyst at FXTM, said he sees gold prices caught between support at $3,290 and resistance at $3,370 an ounce.
“Despite the developments on the trade front, mounting pressure from Trump to cut interest rates, and strong U.S. data, gold needs a potent directional spark,” he said.
Looking beyond near-term risks, some analysts note that President Donald Trump’s ongoing feud with Federal Reserve Chair Jerome Powell could create volatility in the marketplace, overshadowing short-term trends.
“I believe the strength of the USD emanates from American military might and financial strength, and the latter is predicated on the strength of its institutions and our collective trust in them, which appears to be deteriorating in my view,” said Richard Laterman, Head of Portfolio Solutions and Portfolio Manager at ReSolve Asset Management. “Whomever is nominated to replace Powell will be under huge scrutiny, and there will be questions about their independence. That places a large onus at the outset of their tenure.”
“In my view, global appetite has been—and will continue to—decline at the margin for the U.S. dollar as the reserve currency and for Treasuries (as well as other prime U.S.-based assets) as reserves,” Laterman added. “This should continue to favor gold and other precious metals, and even digital assets such as Bitcoin.”
Looking ahead, all eyes will be on next week’s European Central Bank's monetary policy meeting, where economists expect the central bank to keep interest rates unchanged.
Preliminary manufacturing data could also trigger some market volatility next week.
Economic data to watch next week:
Economic data to watch next week:
Tuesday: Federal Reserve Chair Jerome Powell will present opening remarks at an event in Washington, D.C.
Wednesday: US Existing Home Sales
Thursday: ECB monetary policy decision, US weekly jobless claims, flash S&P PMI data, US New Home Sales
Friday: US Durable Goods
