Gold steadied after posting its biggest gain in five weeks, as optimism that the Federal Reserve’s rate hike cycle was nearing an end grew as U.S. inflation data came in below expectations. The U.S. CPI annual rate in June, which was not adjusted seasonally, was recorded at 3%, slightly lower than the median forecast of economists.
The latest data gives the Fed more room to avoid multiple rate hikes. However, it is also unlikely to prevent the Fed from tightening policy further at its meeting later this month, an expectation that the swap market is already close to fully pricing in.
Weston, head of research at Pepperstone, said that for gold prices to continue to rise, there needs to be clearer signs of economic impact, especially in the services sector.
A higher, longer-term interest rate environment throughout the year could lead to a more pronounced economic slowdown by 2024, which could push gold prices above $2,000 an ounce.
Gold’s good days are yet to come, when we’ll start to see the market start to show recessionary trades. But that investment case doesn’t exist yet, so gold prices could get a subtle boost.