Gold Prices: Factors Influencing the Recent Decline and Future Prospects

By Samir Al Khoury,

Gold prices reached $2,450 on May 20 this year, an all-time high, and then fell to $2,287 on June 7. For the month to date, it has been trading within a horizontal range between the $2,300 and $2,400 levels, searching for a clear direction either up or down.

Several factors contributed to the decline in gold prices, including but not limited to:

• The People’s Bank of China stopped buying gold in May after a series of purchases that lasted 18 months.

• The strength of the US dollar index, which measures the dollar’s performance against a basket of six major currencies, resulted from hints from Federal Chairman Jerome Powell, as well as most Fed members, that interest rates will remain high for a longer period. Additionally, the dot plot expectations indicated reducing US interest rates by 25 basis points this year, after previously indicating three cuts in March. Markets currently expect the Federal Reserve to cut rates twice this year, once in September and again in December.

Despite the decline in gold prices, there are three important factors to consider:

1. Inflation in the United States On Friday, the core personal consumption expenditures price index in the United States will be released, which is a very important indicator preferred by the US Federal Reserve. Expectations indicate it will record 2.6% on an annual basis in May, a lower percentage than April’s reading of 2.8%. Caution must be exercised, as any reading lower than expectations could positively reflect on gold prices and negatively on the US dollar due to the inverse relationship between the dollar and gold.

2. Geopolitical Tensions The continuation of geopolitical tensions in the Middle East and the Red Sea, and any expansion of this conflict, could positively affect gold prices, as it is a traditional safe haven.

3. Central Bank Gold Purchases Continued gold purchases by central banks are a significant factor. The question remains: Will the People’s Bank of China resume its gold purchases in the future?

Technical Analysis of Gold Gold prices are trading within a horizontal range, currently at $2,315, which is below the 50-day moving average (in blue) at $2,340, but above the 200-day moving average (in yellow) at $2,117. The biggest challenge for gold is to cross and exceed the resistance level, i.e., the 50-day average. The Relative Strength Index (RSI) indicates neutrality for the dollar index, recording approximately 50 points.

Please note that this analysis is provided for informational purposes only and should not be considered as investment advice.

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