(Kitco News) - Gold prices are expected to consolidate around $4,000 an ounce through the rest of the summer as markets wait for clearer guidance from the Federal Reserve on the direction of its monetary policy for the remainder of the year.
However, one market strategist said that, looking beyond the current consolidation phase, gold’s next $1,000 move will likely be higher.
In an interview with Kitco News, Aakash Doshi, Head of Gold Strategy at State Street Asset Management, said that market expectations surrounding the Federal Reserve’s tightening bias appear to be overly aggressive.
“The markets have done a lot of the Federal Reserve’s work already,” he said. “There is a strong case to be made that the Federal Reserve can stay on hold through the rest of the year as real rates have moved higher.”
Doshi’s comments come as gold has been unable to hold any sustained gains above $4,100 an ounce, with long-term real yields trading near historic highs. Ten-year real yields are trading around 2.4%, near their highest level since October 2023.
Despite these headwinds, Doshi said gold continues to find solid support around $4,000 an ounce, as monetary policy expectations appear to have reached peak hawkishness ahead of the central bank’s monetary policy decision next week.
However, he added that gold will continue to consolidate until markets have a clearer path for U.S. monetary policy. In the interview, he reiterated his updated base-case forecast for gold prices to trade between $4,750 and $5,500 an ounce over the next six to nine months. At the same time, he said gold could still push to $5,000 an ounce within the first half of next year.
“If there is a shift in rate expectations, which pushes 2-year yields below 4%, gold prices could get to $4,500 to $4,750 an ounce before the end of the year,” he said. “That puts $5,000 back into play.”
As for what could push interest rates lower, Doshi said July’s nonfarm payrolls report next week could be the key catalyst for gold’s next move. He explained that June’s employment report showed that only 57,000 jobs were created last month, significantly missing expectations.
“If that data disappoints, then you could see markets reprice year-end rate hike expectations really quickly,” he said.
Although higher interest rate expectations have cooled investment demand, Doshi noted that other pillars of the gold market remain strong. He said central bank demand remains resilient. At the same time, Chinese demand remains relatively healthy, with imports hitting a two-year high in June. He added that in this environment, investment demand for gold-backed exchange-traded funds would only need to remain at current levels to have a meaningful impact on prices.
Doshi also said that despite rising interest rates and higher opportunity costs, gold remains an important global monetary asset as the ongoing war with Iran drives global debt and deficit spending higher.
In a note published earlier this month, Doshi said that global debt has climbed to a record $353 trillion, with government borrowing accounting for an unprecedented share of that total. At the same time, foreign ownership of U.S. Treasuries has steadily declined while central banks continue to increase their gold reserves, reinforcing the precious metal's role as a strategic monetary asset.
He added that even if the Federal Reserve maintains a hawkish stance, those longer-term trends should continue to support gold as investors look for diversification away from traditional reserve assets.
“An active fiscal and inflation impulse should continue to support demand for gold as a monetary hedge,” he said in the note.
