Gold prices fell below $2,000 last week due to factors including a stronger dollar. Since then, Monday continued the trend of shocks and declines, and last week’s decline was also the first decline since March. Spot gold is currently down 0.1% at $1,980.89 an ounce.
With gold sensitive to rising interest rates, investors will be waiting for this week’s U.S. economic data to get an idea of what the Federal Reserve might do next. Beijing time, on Thursday, April 27th, the United States will announce the initial GDP data for the first quarter, and investors need to pay close attention.
Markets are pricing in an 86.3% chance of a quarter-point rate hike at the Fed’s next meeting in May, according to the CME FedWatch tool.
Focus on this week’s US GDP
Lower interest rates typically lead to higher demand for the precious metal, while a stronger dollar tends to dampen demand from foreign buyers.
Naeem Aslam, chief investment officer at Zaye Capital Markets, said: “In the commodity market, precious metals are starting to lose their magic, and the main reason behind this is the strengthening of the US dollar index.
This week’s U.S. first-quarter GDP data could bring some buyers back into the market, as traders consider jumping into gold if the data reveals more weakness than expected.
The $2,000 price level remains an important price point for traders and investors to watch. This is because when the price trades above this level, it brings hopes of a new all-time high. However, when the price is below the price point, traders believe that the precious metal may see a sharp correction. “
Gold bulls continue
However, despite the decline, gold bulls believe momentum will continue as fears of an economic slowdown intensify, while concerns and stability within the banking sector remain.
Kinesis Money’s Doug Turner said the recent gold rush comes at a time when investors are looking to better diversify their existing portfolios — whether in cash, stocks or other digital currencies.
In recorded economic history, gold has provided better protection than cash and other assets during times of risk — such as stock market crashes, recessions or black swan events.
Indian demand weakens
Recent high gold prices have dampened demand prospects in India, the world‘s second-largest consumer. India accounts for more than a fifth of global demand for jewellery, bars and coins.
Chirag Sheth, chief consultant at Metals Focus Ltd, said unless domestic prices fell by 5-10%, demand would be weak between April and June, and overall sales would be flat to negative this year compared to 2022.
India is also set for a hotter-than-usual summer this year, which could also hurt demand.
Future Outlook for Gold Prices
Independent macro analyst Piero Cingari said the precious metal will benefit from the reopening of China after deregulation. Increased Chinese demand will give gold prices a boost.
Looking ahead, Cingari said that the Fed will continue to raise interest rates in May and keep them high for longer than the market is currently considering, which may be a headwind for further gains in gold prices.
If fears of a U.S. recession become more prevalent in the future, gold would be seen as a preferred asset to hold at this stage, drawing money out of equities as corporate earnings fall and the Federal Reserve could be forced to change policy, Cingari said. In this case, we should expect gold prices to hit new all-time highs.