Global gold prices dropped significantly on Monday (July 8th), as a strong stock market performance and profit-taking by investors pressured the precious metal market after its previous rally. However, gold prices remain supported by the possibility of the US Federal Reserve (Fed) initiating an interest rate cut as soon as September.
At the close of trading in New York, spot gold fell $30 per ounce compared to the previous week’s close, equivalent to a 1.25% decrease, to $2,359.6 per ounce, according to data from the Kitco exchange.
As of early Tuesday (July 9th) Vietnam time, spot gold prices in the Asian market had risen by $5.3 per ounce compared to the US close, equivalent to a 0.22% increase, to $2,364.9 per ounce. This price translates to approximately VND 72.5 million per tael if converted using Vietcombank’s selling exchange rate, an decrease of VND 800,000 per tael compared to yesterday’s morning price.
Gold prices had climbed nearly 1.4% on Friday, reaching their highest level in over a month. As the new trading week began, investors took advantage of the previous rally to take profits, causing gold prices to plunge.
“It appears that many investors have realized their profits. Moreover, the strong performance of US stocks also provided competition for the precious metals market,” said senior strategist Bob Haberkorn of RJO Futures.
On Monday, the S&P 500 and Nasdaq indices of the US stock market closed at new record highs.
“However, gold prices are unlikely to fall sharply as the market anticipates an imminent Fed rate cut. Traders are betting on the Fed to begin lowering rates in September, with potential for an additional cut in November or December. Such rate expectations bode well for gold,” Haberkorn added.
According to data from the FedWatch Tool on the CME exchange, the market is wagering on a nearly 73% chance of a September rate cut by the Fed. A week ago, this probability stood below 60%. Traders also believe the Fed will cut rates twice this year, with the second reduction possibly occurring in December.
This week, investors’ attention will focus on Mr. Powell’s testimonies on Tuesday and Wednesday before the Senate Banking Committee and the House Financial Services Committee, respectively. These semi-annual hearings on monetary policy by the Fed Chair are expected to provide new insights into the path of interest rates in the coming months.
Subsequently, on Thursday and Friday, investors will turn their focus to two inflation reports released by the US Department of Labor: the Consumer Price Index (CPI) and the Producer Price Index (PPI). If these reports continue to indicate easing price pressures, bets on a September rate cut by the Fed are likely to increase.
“Should the inflation data surprise to the downside, in line with the trend of recent US economic data, it would provide a strong boost for gold prices,” remarked Capital.com analyst Kyle Rodda.
The US dollar gained slightly on Monday, with the Dollar Index rising over 0.1% to close just above the 105 mark.
According to senior analyst Jim Wyckoff of Kitco News, from a short-term technical perspective, gold bulls holding August gold contracts are in control. They continue to target a close above June’s high of $2,406.7 per ounce. Conversely, the bears are aiming to push prices below the key technical support level of $2,300 per ounce.
The first resistance level for gold prices is $2,400 per ounce, followed by $2,406.7. Meanwhile, the first support level is $2,376.1, and the next is $2,356, Wyckoff stated.
Senior analyst Alex Kuptsikevich of FxPro opined that despite being supported by the US dollar’s weakening trend since late June, gold prices are more likely to dip below $2,300 per ounce in the near term rather than reclaim the all-time high of $2,450.
“We believe the 50-day average of $2,340 will be the first signal” leading to a deeper gold price decline. “If this occurs without resistance from the bulls, gold could quickly drop to $2,300. This is a crucial price level that will determine gold’s momentum in the coming months. Should the $2,300 mark be breached, the upward trend in gold prices since October last year would be broken,” the analyst concluded.
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