In the middle of July, gold spot price reached its highest since May. Having some gold in your portfolio or pocket is always a sensible idea, but is it a favorable moment to buy XAU right now? Let's delve into the reasons behind the metal's recent growth this summer, what we can expect next, and how it's all linked to the forthcoming Fed meeting.
The provided chart shows the movements of the XAUUSD in 2023. It represents the growth of gold price lately, albeit it wasn’t too close to the mark of $2000.
The main reason behind the fluctuations in gold prices is its inverse correlation with the US dollar. As inflation recedes and investors expect a halt in the US interest rate hike, the USD becomes less attractive for market participants. When this occurs, people pay attention to other assets like stocks and gold – the XAU transforms into a safe haven.
Plus, news about a potential new currency backed by gold, which may be created by BRICS countries, has also supported the demand for XAU.
However, as evident from the chart, there was a slight drop after the rise in gold prices, which occurred just before the Fed (and other major central banks) meeting. Experts have no doubts about the next 25-basis-point hike of the interest rate by the Federal Reserve. In fact, this increase has likely already been factored into the current rate. The most essential aspect is the words, not the numbers.
The XAUUSD pair's nearest future depends on verbal signals we receive from the Fed on July 26. If the message indicates that the rate hike is sufficient and there will be no further increases, gold is likely to become a trend. However, if Fed officials suggest the possibility of more rate hikes or confidently state their intention to implement them, gold may not show significant growth in the following months.
At the same time, market participants agree that the moment when the Fed can no longer hike the interest rate is not too distant. In other words, the outcome of the following Fed meeting might affect the near future, not the general situation. It’s expected that towards the end of 2023 and in 2024, as the Fed's rate cycle comes to an end and the US economy slows down, the USD will weaken against other major currencies. This could potentially result in a growth of gold prices during this period.
However, it is important to note that this does not mean you should invest all your available funds into gold. It simply suggests that you should conduct your own analysis and decide whether adding XAU to your portfolio is a prudent choice.