Gold prices fell to $2,457 after hitting an all-time high of $2,483 due to profit-taking, as investors took the opportunity to lock in gains. The drop in gold prices came after expectations that the Federal Reserve would lower borrowing costs. Federal Reserve officials, led by Governor Christopher Waller, suggested that the time to cut the policy rate is approaching, hinting at a potential downward trend for the Fed funds rate.
The US Dollar Index also dropped to 103.72, its lowest level since March 2024, as US Treasury yields declined. Richmond Fed President Thomas Barkin mentioned that inflation has decreased over the last quarter and that the current policy may not be as restrictive as thought. Meanwhile, US housing data for June showed improvements in Building Permits and Housing Starts compared to May, indicating a solid economy. Industrial Production decelerated but exceeded estimates.
Former President Donald Trump’s comments also played a role in driving gold prices higher, as he favored tax reductions, lower interest rates, and increased tariffs, which could be inflationary for the economy and weaken the US Dollar. The US Dollar Index, which tracks the currency’s performance against other major currencies, sank to its lowest level in years, while US Treasury bond yields fell across the curve.
Weaker-than-expected US Consumer Price Index (CPI) data supported gold’s rise above $2,400, as the odds for Fed rate cuts increased. Building Permits for June increased, as did Housing Starts for the same period. US Industrial Production in June decelerated but exceeded estimates. Futures contract for the fed funds rate implies a potential easing of policy later in the year. Bullion prices retreated due to the People’s Bank of China halting gold purchases in June.
Gold’s uptrend is expected to continue, with buyers taking a break after hitting all-time highs. Momentum remains in favor of buyers, with resistance levels at $2,483, $2,490, and $2,500. Support levels are at $2,450, $2,400, $2,392, and $2,350. Gold has a historical significance as a store of value and medium of exchange, with central banks being the biggest holders. Central banks buy gold to diversify reserves and improve currency strength, with emerging economies increasing their gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, as well as risk assets. Geopolitical instability and fears of a recession can drive gold prices up, while lower interest rates tend to support gold prices. The price of gold depends on how the US Dollar behaves, as gold is priced in dollars. A strong dollar can keep gold prices controlled, while a weaker dollar can push prices higher. Gold’s safe-haven status makes it a popular investment during turbulent times.
