Focus on US economic data
Investors are closely watching upcoming U.S. economic data that could signal a soft landing for the economy, which could lead to the Federal Reserve cutting interest rates and boosting gold prices. Current projections are for gold to hit $2,600 per ounce by the end of the year.
This week’s major events
Personal consumption expenditures (PCE) data, the Fed’s preferred inflation measure, is due to be released on Friday, and speeches by at least five Fed officials, including San Francisco Fed President Mary Daly and Fed Governors Lisa Cook and Michelle Bowman, are expected to provide further insight into the direction of Fed policy.
Market expectations
According to the CME FedWatch tool, traders estimate a 66% chance that the Federal Reserve will cut interest rates in September. Lower interest rates reduce the opportunity cost of holding non-yielding assets such as gold, which is beneficial for gold prices. Although U.S. business activity hit a 26-month high in June, price pressures have eased significantly, signaling a possible economic slowdown.
Government bond yields and economic indicators
Gold traders are also keeping an eye on Treasury yields and other economic data following a sharp drop in gold prices last Friday. The drop was driven by firming yields and a sharp rise in the U.S. Services PMI, which hit 55.1, the highest level in more than two years. Additionally, manufacturing activity showed improvement, adding to mixed signals on the economic outlook.
Short-term market forecast
Considering the current economic data and market sentiment, gold prices are likely to remain supported in the near term. With the Fed potentially cutting interest rates amid signs of economic slowdown, the bullish outlook for gold seems justified. Traders should keep a close eye on the upcoming direction from the PCE data and Fed speeches, as these will be crucial in shaping market expectations and the short-term trend of gold.
