Gold Price Forecast – June 2024

Key Takeaways

• Gold appears to be one of the few assets that reflects rising geopolitical risk, reaching another all-time high.
• The European Central Bank is now set to lead interest rates and the US dollar lower.
• Gold’s technical position is currently critically poised as it negotiates a potential bear flag. 

Gold Hits Another High in Bumpy Markets

Gold was essentially flat in volatile trading in May, reaching yet another all-time high above $2,400/toz in the latter half of the month before profit-taking set in, triggered by a more hawkish US rate outlook. 

Gold Rises on Growing Geopolitical Tension

Rising geopolitical risk continues to be a major support for gold. May saw a further round of trade sanctions between the US and China, ostensibly aimed at curtailing import dumping and protecting domestic manufacturing. China also retaliated to US measures targeting China’s support of the Russian war in Ukraine, with sanctions targeting US support of both Ukraine and Taiwan. In Taiwan itself, China launched surprise military exercises aimed at harassing the inauguration of Taiwan’s new pro-independence president. 

Meanwhile, in Europe, Russia has made advances in a surprise Spring offensive against Ukraine and the conflict in the Middle East has continued to escalate. Both have exposed deep divisions within the international community and are set to play a part in the forthcoming elections in Europe, the UK, and the US. There are no clear markers for an abatement of these risks – in fact, quite the opposite.

Despite this proliferation of geopolitical tension, there is little sign that this is uniformly priced into asset markets. Crude oil prices softened over the month, while it appears investor flows still favour risky assets (equities, cyclicals, and high-yield debt) in the face of global instability and despite institutional investors citing geopolitics as a ‘tail risk’. It remains to be seen how this apparent inconsistency will be resolved. 

US Rate Headwinds Persist, but Euro to the Rescue

The prospect of the US starting to cut interest rates took a further backstep in recent weeks, with inflation and growth data within the most recent US Purchasing Managers Index (PMI) causing investors particular concern. Supported by continued hawkish Fed minutes and rhetoric, markets have further pared their expectations of a rate cut by September’s meeting to c. 45%, according to CME FedWatch.

Despite this, we note that US bond markets have ended the month much as they started and it is arguable that with so little now priced in, the scope for a further bearish rate impact on gold is now limited. Moreover, it now seems likely that it is the European Central Bank (ECB), rather than the Fed, that will lead the global interest rate cycle downwards, with a rate cut seen as coming as early as the ECB’s 6 June meeting.

Markets have reacted by marking up the Euro some 2% against the US Dollar over the last month, which is somewhat supportive of gold.

Technical Analysis

Momentum indicators suggested that gold entered May mildly oversold, and these quickly recovered in the first half of the month. However, gold reached overbought territory on 20 May while registering another all-time high at $2,445/toz. This was confirmed by a subsequent steep decline, bottoming out on 24 May near $2,325/toz, breaking both the 100-day and 200-day Simple Moving Averages.

Gold is currently struggling to negotiate a bear flag, in a range of $2,341/toz – $2,359/toz. A break below the previous low of $2,325/toz, might imply further downside towards $2,300/toz and $2,270/toz based on Fibonacci retracements of the break from the high. Proximate resistance is seen at the current 50-day 100-day Simple Moving Averages at $2,360/toz and $2,381/toz respectively.

Key Drivers in June

Key data points that will impact gold’s technical position going forward include the US Manufacturing PMI on 3 June, ECB rate decision on 6 June, US Non-Farm Payrolls on 7 June, the Fed rate decision – and more importantly the corresponding updates to economic forecasts and ‘dot plot’ – together with a raft of US inflation data, all on 12 June.