The gold market continued to slide, extending the downtrend that started in May after the market peaked. The asset’s price has been reacting to the developments in the US in particular as traders monitored economic data and the Federal Reserve.
The release of the Federal Reserve’s minutes yesterday has reinforced expectations of higher interest rates which could make gold less appealing in the face of higher yield risk-free assets. The anticipation of future rate hikes and the changing estimates regarding the peak rate could also play a role in undermining gold.
At the same time, stronger-than-expected job market and PMI figures could support the Federal Reserve on its path toward tightening monetary policy. Stronger figures could, at the same time, fuel interest rate hikes while also improving investors' confidence in the resilience of the economy, pushing them away from gold.
On the other hand, over the longer run the impact of the increasingly higher interest rates on the economy could eventually support gold prices over the medium term if data later shows a weaker-than-expected economy.
While gold could continue to see downside potential, it could see volatile trading as uncertainty piles up around the state of the economy and the next steps of the Federal Reserve’s monetary policy. Volatility could remain elevated for the remainder of the week while new data comes up.
Next week, traders could brace themselves for the release of US inflation data on Wednesday while gold could see some muted price movements in the meantime.