Analysts remain extremely optimistic about gold in the long term; however, as the summer season begins, investors would be wise not to bet on a bullion rally.
Despite the positive sentiment, gold remains trapped in a relatively narrow trading range: it has not been able to maintain sustainable gains above $2,350 per ounce while, in the opposite direction, the precious metal has managed to maintain support at around $2,300 an ounce.
Chantelle Schieven, head of research at Capitalight Research, said investors should prepare for more volatility in the gold market and that, traditionally, summer markets see less liquidity, which can generate more volatility; at the same time, market uncertainty remains extremely high with traders and investors trying to understand what the Fed’s next steps could be: “Gold is struggling right now and reacting to everything because we just don’t know what the Federal Reserve is going to do – explains Schieven – any data different from expectations was enough to shift interest rate expectations back and forth, pushing gold up and down.”
Although gold is floundering, Schieven said it’s important to pay attention to the broader landscape: He said gold has established a solid level around $2,280 an ounce and added that he expects the Federal Reserve to cut interest rates in September to support the economy, even if inflationary pressures remain high: “The big conclusion I drew from the Federal Reserve’s latest comments is that they are not that concerned about inflation and are now shifting their focus to the labor market which shows weak underlying activity that will prompt the Fed to cut rates after the summer” (C. Schieven).
Naeem Aslam, Chief Investment Officer at Zaye Capital Markets, said he expects gold to remain well supported in the near term as traders use the precious metal to hedge their positions ahead of the summer holidays, however, he said he does not expect no short-term breakout except for any movements induced by FOMC statements.
Not all analysts are optimistic that gold can maintain these high levels. Barbara Lambrecht, commodities analyst at Commerzbank, highlighted the Federal Reserve’s reluctance to signal the start of a new easing cycle: “Since the first rate cut in the United States will not occur until the end of the year, the potential for further upside will likely be limited – explains Lambrecht – and, moreover, gold ETFs have recently seen new outflows. It is therefore also worth taking a look at the market positioning of speculative financial investors, after their net long positions reached the highest level since spring 2020 in the last reporting week. The great optimism of these investors could lead to a setback in the price of gold”.
Source KitcoNews
