US Fed meeting to Q2 GDP data: These triggers may impact gold price in near term

Reason for rebound from 16-month lows

The key highlight of the week was the ECB monetary policy meeting, wherein the European Central Bank hiked interest rates by 50 bps crossing market expectations to combat elevated inflation. The ECB president even cautioned about persistent inflationary risks as the war in Ukraine still drags on and energy price prices are holding firm. 

On the other hand, the Bank of Japan on expected lines maintained an accommodative stance, while raising inflation forecasts and highlighting risks to the economic outlook. However, as markets are closely eyeing Fed’s policy meeting next week, bets of a 100 bps rate hike by the US Fed have eased which has caused the greenback to witness losses for the first time in four weeks, while underpinning gold prices. Besides, the energy crisis eased in Europe as Russia resumed flows of gas to the region through a key pipeline, which lifted market sentiment.

Pivot points for yellow metal prices

The path ahead for gold is slightly bumpy, but despite the steep sell-off witnessed for the last five consecutive weeks, gold prices have still managed to find a strong cushion at the key level of $1680 per ounce, which has been protecting gold for almost two years. 

As long as this holds, we expect recovery trade to get underway in gold, where initial support can be seen at ₹49,500 per 10 gm mark at MCX, while the key support rests at ₹48,800 per 10 gm. Only if prices penetrate this pivotal support convincingly, we are likely to see an acceleration of downwards momentum. That said, we envisage gold prices to entice buying interest at lower levels and witness a retreat towards ₹51200-51600 per 10 gm zone in the coming days.

Gold price triggers in near term

For the week ahead, the foremost driving factor for gold would be the outcome of the Fed monetary policy meeting. As inflation in the US has surged to a fresh 41-year high of 9.1% in June, the Fed is likely to deliver another large interest rate hike at the forthcoming meeting. However, two Fed officials have recently downplayed the odds of a 100bps rate hike which has boosted risk sentiments in the markets and weighed on the greenback. Now it looks almost certain that the US Fed will raise rates by 75bps to combat runaway inflation, but that is already factored in. However, the guidance of the Fed about the monetary policy path ahead will largely determine gold prices in the coming days. 

Apart from the Fed’s decision, US Q2 GDP data would be on investors’ radar as that will indicate the health of the US economy amid growing risks of a recession. EuroZone CPI data, US PCE inflation index, and Core PCE Price Index would also impact the price movement of gold. Market participants would also closely eye the dollar index movement that shall provide further cues for gold prices.

(Author is Vice President — Commodity & Currency Research at Religare Broking Ltd. The views and recommendations made above are of the analysts or broking company, and not of Mint)

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