Gold Price Outlook

“Gold Price Outlook
After reaching a fresh record intraday high of $2,085.40 on 4 May, gold prices trended lower over the remainder of the month, touching an intraday low of $1,936 on 26 May. Prices have been consolidating around $1,980 after reaching their May lows. Despite the decline in gold prices over the past few weeks it should be borne in mind that gold prices still are at very high levels by historical standards.

That said, gold prices are vulnerable to the downside over the next few months. A combination of seasonal weakness in prices during the summer months, a change in market sentiment toward certain factors – like a recession and monetary policy pivot – that were supportive of gold prices so far this year, and removal of risks of a U.S. government debt default are expected to weigh on gold prices.

Some of the recently released economic data have shown strong labor market conditions and stronger than expected inflation despite tighter monetary policy and reduced fiscal stimuli. This has resulted in market expectations of the federal funds rate swinging from an up to 75 basis point (bps) reduction in the federal funds rate during the second half of this year to a 25-bps increase. This is a 100-bps change in expectation from earlier this year. The market needs to factor this into prices, which is likely to act as a headwind to prices in the near future. This change in expectations coupled with the typical seasonal weakness in prices could move prices into a lower trading range over the next few months. It would not be surprising to see gold prices slide back toward $1,850 or even $1,800 over the course of summer before making a comeback during the last quarter of this year. Many of the factors that have taken a backseat at this time like concerns of a recession, a loosening of monetary policy, and the debt ceiling are expected to come back into focus later this year and into next year, which should help take gold prices higher.”