Gold prices recorded some volatility as markets turned to more caution as traders digested the US credit rating downgrade as well as the economic data in Europe and the US. Gold has been on a rebound since the beginning of July but could come under pressure as some uncertainty takes over.
The credit rating downgrade has fueled mixed reactions on the market and could push some investors toward safer assets including gold.
While concerns about a recession in the US have been declining in particular after the Federal Reserve announced it didn’t forecast one anymore, traders could continue monitoring economic developments in the US as well as the path of US monetary policy. The time gap until the next monetary policy meeting in the US could leave some room for uncertainty which could impact gold’s performance and could fuel volatility.
In this regard, gold could be exposed to the downside if traders’ expectations move toward more interest rate hikes in the near future. The Federal Reserve left the door open for more hikes while strong economic data supported this possibility.
Over the longer run, gold could continue to find support from central bank demand, which could remain elevated. Jewelry markets could also help prop up the metal in particular if economic growth remains strong and the Chinese economy recovers more strongly.
At the same time, this support could be negated to a certain extent as gold could be weighed by the elevated yields on treasuries in particular if central banks continue raising interest rates and maintain them unchanged for a long period of time.