- Dollar weakness after the ECB meeting has boosted gold futures.
- Gold has become cheaper for overseas buyers.
- The gold rally might be short-lived.
Today’s gold futures (GC) outlook is bullish as the yellow metal shot up in price after the ECB rate hike. Gold becomes cheaper for overseas buyers as the dollar weakens, boosting demand. It is also being boosted by political and economic concerns around the world.
“The geopolitical risks over Ukraine, higher energy prices, and massive amounts of debt are all driving interest in gold,” said Daniel Pavilonis, senior market strategist, RJO Futures.
It is a time of uncertainty, and many investors are becoming risk averse. Safety from rising inflation can be found in gold, especially when the dollar is not rallying.
“Gold remains caught between elevated inflation, growing concerns over a recession, and a flight to quality on the one hand, but sharp rate hikes, a strong USD, and seasonally weak demand on the other,” said Standard Chartered analyst Suki Cooper.
Gold prices have declined by over $380 since early March as the US dollar rallied on the aggressive Federal Reserve. As long as there is uncertainty in the global markets, the dollar will rally. Gold tends to be less attractive when the dollar rallies, as it has no yield.
The Federal Reserve is expected to raise interest rates by 75 basis points at its next meeting. This hike will continue to make the US dollar more attractive, which could mean a return of the downtrend in gold futures.
“The current rally would be short-lived as the Fed is expected to be pretty aggressive, and the dollar might hold its strength,” said Chris Gaffney, president of world markets at TIAA Bank.
Investors will pay attention to the Commitment of Traders report released later today to get an idea of the change in sentiment in the past week.
Gold futures (GC) technical outlook:
Looking at the 4-hour chart, the price broke above the 30-SMA after finding strong support at 1681.2. It is now trading above the 30-SMA, showing bulls have taken over. The RSI also supports the uptrend as it’s above the 50 level.
The price has paused at 1719.0, where it found resistance yesterday and might continue higher to retest the July 13 resistance at 1740.5. This uptrend will continue if the price stays above the 30-SMA.