By David Brough
The outlook for gold prices has turned mildly bullish after slowing U.S. inflation data last week, signalling that the end of the U.S. rate hiking cycle may be coming into view.
Supported by a softer dollar, gold prices ticked up 0.75 percent to USD $1,959.53 per ounce on Friday July 28, after the rate of increase in the closely-watched PCE Index (Personal Consumption Expenditure Price Index) slowed to 0.2 percent in June, from an increase of 0.3 percent in May, buoying confidence among some analysts that the U.S. Federal Reserve may not need to raise rates further as inflation appeared to be coming under control.
The latest inflation figures followed a widely expected U.S. interest rate rise of 25 basis points on July 26, with many analysts suggesting at the time that the monetary tightening cycle may be coming to an end, although Fed Chair Jerome Powell left the door open for a possible further rate hike in September.
Some analysts sense that rates could actually start falling next year.
Hiking interest rates makes gold less appealing to investors as the yellow metal bears no yield.
Kevin Grady, president of Phoenix Futures and Options, told Kitco News he expected gold prices to test the top end of their current range in reaction to the softer PCE Index data. He added that while a definitive softening trend could propel gold higher, even the slightest sign of weakness will be price supportive.
“The market is desperate for any type of clarity. Right now, the Federal Reserve is going to maintain their hawkish bias because they want to see inflation go down further, so any soft data that will shift that bias will be good for gold,” he said.
A climate of steadying and then falling U.S. interest rates could be bullish for bullion, and could signal another test to the upside of USD $2,000 per ounce.
Once sentiment sets in firmly that the U.S. monetary tightening cycle is over, conditions could be in place for a rally in gold prices.
(Disclaimer: Any opinions expressed in this article are solely those of the author and should not be considered as investment advice.)