Gold Price Forecast – July 2024

Key Takeaways

• Rate markets are pushing back against a more hawkish Fed as gold trades flat in June.
• Central Banks’ long-term appetite for gold remains, despite PBOC pause.
• Gold price volatility over the last week has left its technical position highly uncertain. 

Markets Reject a Hawkish Fed 

June saw the US Federal Reserve meet to discuss rate policy, update its economic projections and renew its ‘dot plot’. While the rate decision itself (rates on hold) was widely anticipated, the accompanying statement and ‘dot plot’ were unexpectedly hawkish. The FOMC doubted that inflation was making sufficient progress in falling sustainably to target, slashing the median number of implied quarter-point cuts in 2024 from three in its March ‘dot plot’ to just one.

Unsurprisingly, this hawkish pivot stalled an incipient recovery in gold prices. However, the Fed’s view was quickly rejected by markets as US rates have eased over the month with both 2-year and 10-year US Treasury yields somewhat lower and futures are pricing in a c. 60% probability of more than one rate cut in 2024. Accordingly, the strengthening of the US dollar in June should be viewed as evidence of still heightened geopolitical risk, rather than a rate-driven phenomenon. Dovish rate markets certainly helped gold trade essentially flat on the month. 

Central Bank Demand: Short-Term Pause, Long-Term Growth

Gold was impacted in June by the surprise news that the People’s Bank of China had halted gold purchases in May after eighteen straight months of net purchases. It remains to be seen how this has impacted more recent aggregate flows of physical gold into central banks’ vaults as data is typically reported with a 1–2-month lag. However, given that central bank purchases are seen as a key support for gold, the market reaction was understandable.

Subsequently, however, the 2024 Central Bank Gold Reserves Survey (CBGR) published by the World Gold Council suggests that central banks’ gold demand is set to continue over the short to medium term. On a 12-month horizon, 29% of respondents expected to purchase gold, while 81% expected gold reserves to rise. Over the medium term, the CBGR revealed that 62% of respondents thought US dollars would be a smaller proportion of reserves in five years, while 69% thought the corresponding share of gold would increase. Moreover, the incentive for central banks to diversify reserve assets has probably grown following the EU’s move to use part of Russia’s frozen reserve assets as collateral for a loan to Ukraine and the US Congressional Budget Office (CBO) warned over a ballooning US national debt.

Technical Analysis

Gold decisively broke key resistance on 20 June at the then 50-day Simple Moving Average of $2343/toz on, coinciding with a downtrend line from the 20 May and 7 June peaks. However, this was promptly reversed the next day and gold now trades under a declining 50-day Simple Moving Average at $2341/toz with neutral momentum.

While this move appears to invalidate a previously mooted bearish head and shoulders pattern with a neckline at $2280/toz, we cannot discount the possibility that a more complex topping pattern is being formed with the same neckline. If breached, the next primary levels of support are at the 0.618 and 1.0 Fibonacci Retracement from the all-time high on 20 May at $2174/toz and $2108/toz respectively. Conversely, sustained strength above c. $2250/toz might provide a platform to once again move towards recent highs. 

Key Drivers in July

Upcoming events for gold investors include: Euro Zone June flash Inflation Rate for on 2 July, US June ISM Services PMI for June and FOMC Minutes on 3 July, June US employment data on July, Fed Chair Powell Testimony to Congress on 9 July, June US CPI data on 11 July, June US Retail Sales on 16 July, ECB interest rate decision on 18 July, June US Core PCE Inflation on 26 June and US Federal Reserve rate decision on 31 July.

Citations

1. www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20240612.pdf 

2. https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value=2024 

3. https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html 

4. https://www.gold.org/goldhub/data/2024-central-bank-gold-reserves-survey#:~:text=According%20to%20the%202024%20Central,began%20this%20survey%20in%202018 

5. https://budget.house.gov/press-release/congressional-budget-office-updates-baseline-deficit-spending-is-27-percent-higher_than-previously-estimated