Gold Forecast

Gold prices have recovered their shine this last week, as risk-aversion boosted demand for the safe-haven metal. Spot gold hovers around $ 1,740 a troy ounce as the week comes to an end. The subdued demand for the greenback has kept gold underpinned ever since the week started, but central banks pledging to keep pumping stimulus into the economies for sure is the main reason behind gold’s strength.

The metal only eased on Thursday, when the dollar appreciated on the back of panic selling in Wall Street. The DJIA lost over 1800 points, its worst day in over three months after the US Federal Reserve hinted that it expects a long way ahead of any economic recovery. Policymakers are still quite uncertain over the economic developments, with the pandemic being the main reason behind the absence of a clearer picture.The Fed announced that it will continue to buy Treasurys and mortgage-backed securities at least at the current pace, while rates are foreseen on hold through the next two years. The only thing sure, then, is that policymakers will continue to inject liquidity into the system, which in turn, would mean persistent demand for the bright metal.

And is not just central banks. US Secretary Mnuchin said on Thursday that another relief package is needed and that the economy can’t be shut down again, despite mounting fears of the second wave of coronavirus contagions in the country. Most cases are being reported in Florida, California, and Texas, although they are also on the rise in New York.

With growth’s expectations down and coronavirus cases on the rise, fears will remain, which means that risk-aversion will likely limit the downside for the metal.

The macroeconomic calendar had little saying on market movements, as the market has long ago priced in dismal numbers within the lockdowns period. Still, US inflation excluding food and energy prices was up by 1.2% in the year to May, almost half what it was before the pandemic. Also, Initial Jobless Claims for the week ended June 5 came in at 1.54 million, in-line with the market’s forecast, although Continuing Jobless Claims remained well above 20M by the end of May. On a positive note, the preliminary estimate of the June Michigan Consumer Sentiment Index, which improved to 78.0 from 72.3, beating the market’s expectation.

The upcoming week will see US Federal Reserve Chief Jerome Powell testify before Congress on Wednesday and Thursday. Mid-week, the US will publish May Retail Sales, which are seen up by 5% after collapsing by 17.2% in the previous month.