Gold prices have come under notable pressure since June, with COMEX gold futures retreating from the key level of $4,500 per ounce and trending lower.
Last week, despite a de-escalation in U.S.-Iran tensions that saw international oil prices fall back to pre-March conflict levels, the market further priced in expectations for Federal Reserve interest rate hikes. Against a backdrop of a strengthening U.S. dollar, commodities broadly weakened, and capital outflows added further downward pressure on gold. International gold prices accelerated their decline mid-week, briefly breaching the $4,000 per ounce mark. Prices subsequently recovered somewhat, moving back above $4,000, after Fed officials signaled a more hawkish stance.
Ye Qianning, a precious metals researcher at GF Futures, noted that from a macro perspective, the U.S. economy shows overall optimistic aggregate growth, driven by fiscal stimulus from tax refunds and AI-related capital expenditures. While geopolitical tensions in the Middle East have pushed up energy prices, leading to persistent inflationary pressures, the pass-through to downstream sectors remains limited.
"Considering that the new Fed Chair, Wash, is gradually implementing reforms to reduce the Fed's forward guidance and market expectations management, the market may increasingly rely on inflation data and statements from other FOMC members to gauge the future monetary policy path," she stated. With energy prices receding and inflation potentially coming under control, some officials are leaning towards keeping interest rates unchanged this year or implementing just one more hike. This could lead to a gradual correction of the market's previously more extreme expectations.
For the week ahead, Ye Qianning advises monitoring the U.S. non-farm payrolls data and the U.S.-Iran situation for their potential impact on the U.S. dollar index and the relative strength of gold. "After a significant oversold condition, there is room for a rebound in gold prices. However, due to a lack of new bullish catalysts, coupled with the capital siphoning effect from the red-hot AI sector on equity markets, which continues to weigh on investment and consumer demand, the overall potential for a price recovery is limited," she opined. She sees resistance for international gold prices around $4,200 per ounce. Should the U.S. economy maintain its robust performance, it would likely exert renewed downward pressure on gold.
Cai Yiqing, a gold researcher at AVIC Futures, also believes gold prices face near-term headwinds. "Over the past weekend, U.S.-Iran tensions escalated again. Mutual accusations of violating the memorandum of understanding have reignited geopolitical risks that had previously cooled, which will likely increase volatility in the precious metals market, with gold prices expected to move in a choppy, range-bound pattern," she suggested. She recommends paying attention to Chair Wash's speech at the European Central Bank forum this week and the subsequent progress of reforms to the central bank's system and communication mechanisms, as well as the market's gradual adjustment of Fed rate hike expectations. From a medium- to long-term perspective, continued gold purchases by global central banks should continue to provide underlying support for gold prices.
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