- Gold prices continue to slide as the strength of the US dollar and weak sentiment weigh on the precious metal.
- Gold broke through the psychological support level of $2,300 per ounce, falling to a three-week low of $2,293 and settling around $2,303 at the time of writing this analysis.
- This is ahead of a slew of important US economic data releases.
Overall, gold prices continued to decline from the previous session as investors digested more hawkish comments from Federal Reserve officials about the outlook for US interest rate cuts. Federal Reserve Governor Lisa Cook said on Tuesday that a rate cut would be appropriate at some point, but the timing was uncertain, while Federal Reserve Governor Bowman said she did not expect any rate cuts this year.
This came on top of strong business activity data in the United States last week, which reached its highest level in 26 months in June, which increases hawkish pressures. Meanwhile, investors are looking ahead to Friday’s core PCE data, the Fed’s preferred inflation gauge, especially after the recent cooling of CPI and PPI data, along with the third estimate of Q1 GDP growth, consumer spending and income.
On another note, affecting the gold market, the US dollar is at a two-month high.
According to trading, the US dollar index DXY rose to 106 on Wednesday, a level not seen in about two months, as traders assess the monetary outlook while digesting comments from US Federal Reserve officials and awaiting the headline inflation PCE report on Friday. For her part, Fed Governor Michelle Bowman expressed her readiness to raise interest rates if inflation weakens, while Governor Lisa Cook mentioned possible rate cuts in the future, but the timing is uncertain.
The Fed’s cautious approach to rate cuts is in contrast to recent policy by other major central banks including the European Central Bank, which has already cut borrowing costs by 25 basis points and could cut them again this year. Moreover, the probability of a 25-basis point Fed rate cut by September is currently at 64%, down from 68% earlier in the week. Traders are still betting on a quarter point cut this year
In forex trading, the US dollar strengthened against the euro and the Swiss franc and continued to rise against the Japanese yen. On the other hand, the dollar weakened against the Australian dollar as Australia's monthly inflation gauge came in hotter than expected.
Another factor affecting the gold market is the rise in the 10-year US Treasury yield to 4.3%, but it remained near its lowest level in three months. Investors analyzed comments from Fed officials and awaited PCE inflation, which is seen as indicating a slowdown in inflation, in line with CPI and PPI data. On the monetary policy front, traders are still betting on a quarter-point cut this year. Meanwhile, the two-year Treasury auction was fair and strong.
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On the stock market trading platforms, US stocks are trimming their losses. Recently, major US stock indexes pared early losses on Wednesday to trade flat to higher in afternoon trading. This is reflecting mixed performance among tech giants as markets await corporate catalysts and the key PCE report due later in the week. Moreover, the S&P 500 and Nasdaq 100 indexes are hovering near flat and remain relatively close to their record highs last week, while the Dow Jones rose 50 points. In trading, Nvidia shares fell nearly 2%, continuing their volatile momentum as markets continue to gauge whether the AI hype and its impact on chip demand are at a buying peak or in line with fundamentals. Meanwhile, Apple shares added 2.3%, Amazon and Tesla shares added nearly 4% each to offset Nvidia's decline. Also, Micron shares traded slightly above flat ahead of its earnings report due after the closing bell. Additionally, FedEx shares jumped nearly 15% after beating earnings estimates.
Gold Price Forecast and Analysis Today:
The downside path is still strong for gold based on the performance on the daily chart above. A move below the $2,300 level will strengthen the bears’ control and may move prices towards strong buying levels, the best ones currently being $2,279 and $2,260 per ounce. Furthermore, we still prefer to buy gold from every downside level as geopolitical tensions and record buying of the metal as a hedge will support gold’s gains in the long run.
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