Gold seen losing lustre into year-end

Metal struggles to hold onto gains above $2,000

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A worker polishes gold bullion bars at the ABC Refinery in Sydney. — AFP

Published: Sun 9 Jul 2023, 1:47 PM

Gold price regained some positive traction on Friday and recovered a part of the overnight losses from the $1,935 region, or a nearly two-week high, but analysts warned that the yellow metal is losing momentum as it has not been able to hold its gains above $2,000.

Spot gold added 0.7 per cent to $1,924.13 an ounce. US gold futures gained 0.89 per cent to $1,925.60 an ounce. Precious metal analysts said an upward swing still seems elusive. In their latest quarterly outlook, analysts at BMO Capital Markets said that they are leaving their year-end average gold price target unchanged at $1,905 an ounce, and warned that the precious metal is losing momentum as it has not been able to hold its gains above $2,000.

“Gold has struggled for direction over recent weeks as markets digest climbing treasury yields, dollar strength, the potential lagged impact of an unprecedented cumulative rate-hiking cycle, and elevated geopolitical risk,” the analysts said in the report. “Our base case remains that uncertainty coupled with macro headwinds will see prices well supported into Q3; however, as we gain clarity on the central bank rate trajectory and the ‘hard landing’ scenario is averted, we see gold losing some of its luster into year-end.” The neutral outlook comes as yellow metal prices held support above $1,900 an ounce but remain unable to break initial resistance around $1,930.

However, some analysts remain bullish and expect gold prices to hit $2,100 by end of 2023, with central banks continuing to boost gold reserves as dollar sanctions trigger a shift in long-term strategies on currency reserves. Analysts cited elevated geopolitical risks and inflation driving gold to $2,100 by the year’s end and $2,200 by March 2024.

According to Swiss investment bank UBS, even after a record year of central bank purchases, demand for the yellow metal will remain strong as the freezing of Russian currency reserves may have led to a long-term impact on the behaviour of central banks. In 2022, central banks bought 1,078 metric tonnes, the highest annual demand for gold since record-keeping began in 1950 and more than double the 450 metric tonnes purchased in 2021

A private survey showed on Wednesday that business activity in China’s service sector grew less than expected in June and further fueled worries about a global economic downturn. Apart from this, the potential risk of a further escalation in a trade conflict between China and the US — the world’s largest economies — tempers investors’ appetite for perceived riskier assets.

Market pundits said the prospects for further policy tightening by the Federal Reserve might hold back traders from placing aggressive bullish bets around the non-yielding yellow metal.

The minutes from the June Federal Open Market Committee (FOMC) policy meeting released on Wednesday revealed that almost all members supported resuming rate hikes as inflation remains unacceptably high. Some members were in favour of raising the rate rather than pausing at the June meeting, flagging a very tight labour market that threatens to push wages and inflation higher. “The outlook reaffirms market bets for a 25 basis points (bps) lift-off at the upcoming FOMC meeting on July 25-26. This, along with a more hawkish stance adopted by other major central banks, might contribute to capping gains for the gold price,” analysts said.

From a technical perspective, analysts pointed out that the $1,925-$1,926 region is likely to act as an immediate hurdle ahead of the overnight swing high, around the $1,935 area. This is followed by the 100-day simple moving average (SMA), currently around the $1,947 zone. “A sustained strength beyond the latter might trigger a short-covering rally and lift the gold price to the $1,962-$1,964 area en route to the $1,970-$1,972 supply zone. Some follow-through buying should allow bulls to reclaim the $2,000 psychological mark and test the $2,010-$2,012 resistance,” market analysts said.a