Gold price outlook with central bank meetings in focus

gold price

Gold price is trading in the green for the second session in a row ahead of crucial central bank meetings. As at the time of writing, it was at $1,713.85 after bouncing off last week’s low of $1,698.55.

gold price
gold price

Central bank meetings

On Thursday, the Bank of Japan (BoJ) and European Central Bank (ECB) are set to release their interest rate decisions. Investors expect ECB to increase interest rates for the first time in a decade as it strives to ease the heightened inflationary pressures. At the same time, BoJ is seen to continue with its massive monetary easing policy. However, it will likely adjust its inflation forecast for the current financial year from 1.9% to 2% in addition to lowering its economic growth forecast.

The US dollar is set to retain its strength against its peers in the ensuing sessions. For instance, in the past week, USDJPY hit a 24-year high of 139.44 yens. Besides, EURUSD hit parity last week before bouncing back. While the current easing of the US dollar’s rally has boosted gold price, its gains will likely be curbed by the strong greenback.

Fed’s stance

Gold price is also enjoying a relief from the relative quietness of the Fed officials ahead of the central bank’s interest rate decision scheduled for next week. In the past week, several FOMC members weighed in on the pros and cons of another super-sized rate hike.

 For instance, the central bank’s Governor Christopher Waller forecasts a 75 basis points increase in the July meeting. However, he added that he will be watching keenly on the crucial economic data for further cues on what the Fed should do to ease the 41-year high inflation. With regards to 100 basis points, which the markets is pricing in, the Waller stated that it is “getting ahead of itself”. On the other hand, officials such as the President of the Federal Reserve Bank of San Francisco, Mary Daly are opposed to such a huge increase even though they do not refute its possibility.

An environment of high interest rates tend to be bearish for gold price. Indeed, this is one of the factors behind the decline of about 17% over a span of four months. Seeing that investors are eyeing the Fed interest rate decision scheduled for 27th July, gold price may remain range-bound for the remainder of the week.

Leave a Reply

Your email address will not be published.