Gold Price Consolidates Above $2,500/oz – London Business News | Londonlovesbusiness
Spot gold has been rather rangebound of late, spending much of the week consolidating north of the $2,500/oz handle, finding solid buying interest upon several re-tests of that figure. The relatively subdued conditions speak to the quiet nature of this week’s data docket, which has been lacking in top-tier macro releases, and continues to do so until the August US employment report, due next Friday. Hence, the yellow metal has found itself in something of a tug-of-war between still-supportive central bank buying, and relatively firm risk appetite.
Central Bank Buying and Risk Appetite
Central bank buying has been a key driver behind the recent strength in the gold price. According to data from the World Gold Council, central banks added 224.4 tonnes of gold to their reserves in the first half of 2021, marking the ninth consecutive year of net purchases. This trend is expected to continue as central banks seek to diversify their reserves and protect against currency devaluation.
On the other hand, risk appetite in the markets has been relatively firm, with investors showing a preference for higher-risk assets such as equities. This has put some pressure on the gold price, as investors seek higher returns in a low-interest-rate environment. However, the recent consolidation above $2,500/oz suggests that gold still maintains its appeal as a safe-haven asset in times of uncertainty.
Market Expectations and Fed Policy
Market participants are eagerly awaiting the August US employment report, as it could provide clues about the Federal Reserve’s next move. A soft jobs report could prompt the market to price in a 50 basis point cut in September, which would likely provide further support to the gold price. However, a hawkish repricing of the market’s rate expectations could pose headwinds to the precious metal complex.
The Fed’s policy stance will be crucial in determining the direction of the gold price in the coming months. The central bank has signaled its intention to start tapering its asset purchases later this year, which could reduce liquidity in the markets and support the US dollar. This could weigh on the gold price, as a stronger dollar tends to make the precious metal more expensive for holders of other currencies.
Technical Analysis and Price Outlook
From a technical standpoint, a closing break below $2,500/oz could signal further downside for gold. Bears would likely re-enter the market with conviction if this key support level is breached. However, if the price manages to hold above $2,500/oz and break through resistance levels, it could pave the way for a rally towards $2,600/oz and beyond.
In the medium term, the balance of risks for gold remains tilted to the upside. Central bank buying, geopolitical tensions, and inflation concerns continue to provide support for the precious metal. Investors seeking to diversify their portfolios and hedge against market volatility are likely to turn to gold as a safe-haven asset.
In conclusion, the gold price consolidation above $2,500/oz reflects the current tug-of-war between central bank buying and risk appetite in the markets. The upcoming US employment report and Federal Reserve policy decisions will be key drivers of the gold price in the coming weeks. Technical analysis suggests that a break below $2,500/oz could invite further selling pressure, while a hold above this level could lead to a potential rally. Investors should keep a close eye on market developments and adjust their strategies accordingly to navigate the uncertainties ahead.
