Softer US Rate Hike Odds Boost Gold Markets

Gold prices rebounded sharply towards the end of the week as easing expectations for another U.S. interest rate increase encouraged investors to return after weeks of heavy selling. Spot gold climbed by a little over 1.5% to settle at $4,088.39 while August Comex futures gained 1.2%. 

Despite the strong finish, bullion still posted another weekly loss, ending the week down about 2.1% after falling to a seven-month low earlier. The recovery was largely driven by a weaker U.S. dollar and declining crude oil prices, which eased concerns over persistent inflation. 

At the same time, the probability of a rate hike by the Federal Reserve in September slipped to 59%, providing relief for gold, which has traded inversely to interest rate expectations throughout the year. The latest Personal Consumption Expenditures (PCE) Price Index also supported sentiment. 

Annual inflation matched forecasts at 4.1%, offering no new evidence that the Fed needs to become more aggressive. While the data did not strengthen the case for rate cuts, it also failed to reinforce hawkish expectations, prompting short-covering after several weeks of sustained declines. 

Physical demand offered mixed support. Lower prices attracted Indian buyers, with gold trading at a premium in India for the first time in several weeks. However, demand from China remained subdued, limiting the broader strength of the physical market. As a result, Friday’s rally was driven mainly by shifts in currency and interest rate expectations rather than stronger global demand. 

Even with the bounce, the broader technical outlook remains cautious. Gold has fallen around 30% from its January record high, reflecting markets adjusting to expectations that American interest rates will remain elevated. 

The recent “death cross,” where the 50-day moving average moved below the 200-day moving average, also signals continued downside risk. 

Technically, resistance is seen near $4,170.85, with stronger resistance around the 50-day and 200-day moving averages between $4,468.98 and $4,473.67. On the downside, a break below $3,959.08 would reinforce the bearish trend, while a move under $3,886.46 could trigger another wave of selling. 

Looking ahead, gold’s direction will continue to depend largely on the path of U.S. monetary policy, movements in the U.S. dollar, and developments in global energy markets. 

While softer expectations for further Federal Reserve rate hikes have provided short-term support, the outlook remains highly sensitive to inflation data and any changes in the central bank’s policy stance. 

Oil prices will also play a crucial role. Any renewed surge in crude oil, particularly if triggered by supply disruptions or heightened tensions in the Middle East, could reignite inflation concerns and strengthen expectations of tighter monetary policy, weighing on gold prices. This fluid geopolitical and macroeconomic situation will be closely watched by companies that mine gold, such as Platinum Group Metals Ltd. (NYSE American: PLG) (TSX: PTM). 

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