Gold prices edged higher on Tuesday, supported by expectations of dovish statements from the US Federal Reserve, which begins its two-day monetary policy meeting later in the day.
Spot gold was up 0.5% at 1,345.74 USD per ounce by 07:00 a.m. ET. The US gold futures rose by 0.4% to 1,348.1 USD per ounce.
The US central bank is expected to leave borrowing costs unchanged this time but possibly lay the groundwork for a rate cut later this year. The expectations of an interest cut have been gradually increasing amid the US-China trade war, signs of the US economy losing steam and pressure by President Donald Trump to ease policy.
On the background of these factors, bullion receives strong support, with the metal gaining more than 6% since touching a 2019 low of 1,265.85 USD in early May. Gold is testing again the key resistance placed at 1,350-1,360 USD. The analysts see the recovery seen after the fall to 1,330-1,335 USD of yesterday, witnessing the strength of the bullish movement, as investors continue to bet on a dovish Federal Reserve in the next few months.
Surprisingly, today the European Central Bank President Mario Draghi suggested that the ECB will provide more stimulus, either through new rate cuts or asset purchases, if inflation does not pick up. He defended the tools that the organization has available, saying that its asset purchase program still has considerable headroom.
Gold, often favored by investors in times of uncertainty, tends to gain on expectations of lower interest rates.
In case the Federal Reserve do not give sufficiently strong signals for lowering interest rates, the US dollar may receive strong support, which will result in a collapse of the gold price.
Holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, rose 0.6% to 764.10 tonnes on Friday from 759.70 tonnes on Thursday.
Among other precious metals, silver was up 0.4% at 14.89 USD per ounce. Palladium climbed about 2% to 1,478.30 USD per ounce, having hit a high since March 27 at 1,485.55 USD earlier in the session. Meanwhile, platinum rose by 0.9% to 799.23 USD per ounce after falling to its lowest since May 31 at 786 USD earlier in the session.
Gold price could hit 1,400 USD
Wells Fargo said that gold could hit 1,400 USD per ounce soon, but still cautioned investors from buying the precious metal at current price levels, noting that the metal’s downside potential is much higher than its upside.
“It wouldn’t shock us to see gold make a quick run at 1,400 USD first, before it starts heading lower, toward 1,200 USD. Our bottom line was that gold looks expensive at 1,340 USD”, according to John LaForge, Wells Fargo head of real asset strategy. “With roughly 60 USD of potential upside (to 1,400 USD), and 140 USD of possible downside (to 1,200 USD) the gold does not offer a really good risk/reward trade-off at the moment. For serious long-term buyers, we say wait for much lower prices, probably sub-1,200 USD area”, added he.
The short-term direction of gold prices will be controlled by the U.S.-China trade spat, which eventually will be resolved, rendering all the short-term gains or losses as only temporary.
However, in a case of a no-deal scenario, gold stands to benefit, Wells Fargo highlighted, pointing to the metal’s price movements in May.