Gold Price Forecast | Inflation and Fed Rate Cuts in Focus

Gold markets initially surged higher during the trading week, challenging the $2,500 region before retreating to around the $2,400 level. This area, which previously acted as major resistance, is now providing significant support. Even if gold prices dip below $2,400, the $2,300 level is another key support area. Gold hit a new all-time high as it approached the $2,483 resistance level per ounce, driven by growing optimism that the Federal Reserve will cut US interest rates as early as September.

On Monday, Federal Reserve Chairman Jerome Powell indicated that lower-than-expected U.S. inflation in June has bolstered confidence in achieving the central bank's price growth target. He mentioned that the Fed would not wait until inflation reaches 2% before starting to cut interest rates. This sentiment was echoed by Federal Reserve Governor Adriana Kugler, who expressed cautious optimism on Tuesday that inflation is moving towards the target rate. According to the CME’s FedWatch tool, financial markets are fully expecting the Fed to cut rates at its September meeting, with traders betting on three 25 basis point rate cuts instead of two this year. Expectations that other major central banks in Europe and Asia will also cut rates have further boosted demand for precious metals.

Dollar Weakens, Boosting Gold Demand

The dollar price is at its lowest level in four months, further supporting gold prices. On Wednesday, the dollar index fell to 103.7, extending its losses for a second day. Traders are now fully pricing in a Federal Reserve rate cut in September. Chairman Powell's recent statements have added confidence that inflation will return to target levels and that the Fed will not wait for inflation to hit 2% before cutting rates. New York Federal Reserve President John Williams also noted that "inflation is coming down to 2% and the economy is coming back into balance."

In forex trading, the dollar was particularly bearish against the Japanese yen, falling by about 1.3%. It also lost ground against the British pound after the UK inflation rate failed to slow.

US Treasury Yields and Economic Data

Another factor supporting gold prices is the yield on the US 10-year Treasury note, which is hovering at its lowest level in four months. The yield settled around 4.17% amid strong expectations that the Federal Reserve will begin cutting interest rates in September, with two more cuts anticipated before the end of the year. Recent data showed that US retail sales were unchanged in June, as a decline in auto sales was offset by increased activity in other sectors.

Outlook for Gold Prices

The overall upward trend for gold prices is strengthening, with recent gains pushing technical indicators towards strong overbought levels. Profit-taking is unlikely to occur without a recovery in the U.S. dollar and easing global geopolitical tensions. Otherwise, the bulls are likely to push towards a new record high of $2,500 per ounce.