Fed is about to enter a new cycle, world gold breaks out

After a period of stagnation, pressured by profit-taking and hovering around the $2,300-2,350/ounce range, the gold market has become active again. The world gold price in the week of July 1-5 suddenly surged strongly in the weekend session, reaching nearly $2,390/ounce.

The rapid breakout above the $2,350/ounce barrier has opened a new bullish trend for this commodity and the gold market will be even more attractive if gold surpasses the psychological barrier of $2,400/ounce in the new week.

The global gold market has become more active and has a bright outlook after the US Federal Reserve (Fed) became less hawkish on monetary policy. This happened in the context of the world's number 1 economy starting to send out many negative signals.

Over the past two years, the US has focused on fighting inflation, pushing interest rates to a four-decade high of 5.25-5.5% per year, which has been maintained since September 2023. Despite the high and prolonged interest rates, the US economy remains surprisingly strong.

The US economy has been sending out some negative signals lately. May’s employment figures were revised down, while the unemployment rate rose in June.

Market observers have previously expressed concerns about the negative impacts of high interest rates, which the Fed is closely monitoring. However, the effects of policies often have a lag. Therefore, it is difficult to determine the right time to change or reverse policies, thereby helping the economy escape crises, shocks or simply sudden fluctuations due to policies.

According to the US Department of Labor, the US non -farm sector recorded 206 thousand new jobs in June, much lower than the 218 thousand new jobs in May. The unemployment rate rose again, to 4.1%, higher than the 4% forecast by economists.

giavangMinhHien20 OK.gif
World gold prices increase sharply, what will happen to domestic SJC gold bars and plain rings? (Photo: HH)

With signs of weakness in the US job market, the world spot gold price once again approached the $2,400/ounce mark.

In mid-April and in the third week of May, the world spot gold price surpassed this threshold and at one point reached a historic peak of 2,450 USD/ounce when investors expected the Fed to cut interest rates in June. However, the unexpectedly strong US economy and relatively high inflation, still above 3%, not reaching the target of 2%, led to the delay in the Fed's interest rate cut.

Worsening signals from the US economy last week increased the possibility of the Fed cutting interest rates at its meeting on September 18.

As of the afternoon of July 7, according to signals from the CME FedWatch tool, the market is betting on a 77.9% chance that the Fed will cut interest rates on September 18. Of these, there is a 72% chance that the Fed will cut interest rates by 25 basis points, from the current 5.25-5.5%/year to 5-5.25%/year. On July 3, the rate of interest rate cut prediction was only 67%.

Gold up to 2,500 USD, how slippery is the ring?

Investors are closely monitoring developments in international markets after the Fed signaled a less hawkish stance on monetary policy. The possibility of the Fed cutting interest rates has become more likely as the unemployment rate has reached a three-year high.

The “door” to cut interest rates is wider not because the Fed is more confident with falling inflation but because of the risks that the US economy may face when expensive money policies are maintained for a long time.

High interest rates and yields on US Treasury bonds have kept the USD very strong against most other currencies, not only causing instability in the world financial market but also putting great pressure on gold.

If the USD had not been strong, gold would have rallied much more than it has in the past few months.

Now, the signal that the Fed will reverse its monetary policy from tightening to easing starting next September has become clearer. The dollar may also enter a long-term downtrend. The Fed may have a dozen rate cuts ahead.

With new developments, gold is likely to return to the uptrend established since the end of 2023.

Previously, Goldman Sachs predicted that gold would reach $2,500/ounce by the end of this year and $3,000/ounce next year. This possibility is widely believed if the Fed cuts interest rates.

In addition, China is said to have resumed net gold purchases after unexpectedly stopping gold purchases in May, ending an 18-month streak of net purchases.

According to the long-term strategy, China will increase its gold holdings and reduce its USD holdings. The People's Bank of China (PBOC) currently has a relatively low gold share in its foreign exchange reserves, only 4.9%.

Not only China, Türkiye and some Middle Eastern countries are still increasing gold purchases.

However, in the immediate future, in the week of July 8-12, the spot gold price faces an important psychological barrier of $2,400/ounce. If it fails to overcome this level, profit-taking pressure and short-selling activities may increase, causing gold to correct downwards again.

For "big players" like China, gold buying activities will be discreet, they can take advantage of the gold price drop in June to buy heavily, and when gold reaches 2,400 USD/ounce, they can reduce their purchases. However, the Fed's monetary policy reversal in September may make it difficult for many players in the international gold market to delay buying gold any longer.

According to a survey on Kitco, 83% of experts believe that gold will increase in the new week. Meanwhile, 66% of retail traders predict the same.

Domestically, the price of SJC gold bars has remained stable at nearly VND77 million/tael (selling price) for about 30 consecutive sessions. Meanwhile, the price of gold rings continues to rise and is currently at VND76.5-76.7 million/tael (selling price), which is only about VND300,000/tael lower than the price of SJC gold bars. Compared to the beginning of the year, gold rings have increased by about VND13-14 million/tael.

Plunging and then soaring, what will happen to gold prices after the Biden - Trump debate? World gold prices plunged and then soared but "stuck" at the threshold of 2,350 USD/ounce. However, the price of precious metals is expected to fluctuate strongly after the debates between President Joe Biden and Republican opponent Donald Trump.