The World Gold Council (WGC) has warned that gold prices could face further downside pressure in the near term, driven by a strengthening US dollar, elevated bond yields, and expectations of tighter monetary policy. The LBMA Gold Price PM fell 0.8% last week to close at USD 4,151 per ounce, bringing year-to-date losses to nearly 5%.
Strong Dollar and Hawkish Fed Weigh on Gold
The WGC report highlighted that the US Dollar Index (DXY) broke above the psychologically important 100 level, supported by the Federal Reserve's 'hawkish pause' and higher bond yields across the curve. "The US dollar index (DXY), taking its cue from the Fed's 'hawkish pause', higher bond yields across the curve and stronger equities - broke comfortably above 100 last week," the report stated. If the dollar's upward momentum becomes entrenched, it could exert "further marginal pressure on gold," according to the council.
Fed Policy Path and Inflation Concerns
The June Federal Open Market Committee (FOMC) meeting reinforced expectations of a prolonged higher-rate environment, with half of the committee members leaning towards a tighter policy path. Fed Chair Kevin Warsh reiterated his commitment to controlling inflation. The WGC noted that expectations of stronger US inflation data could strengthen the case for a hawkish Fed stance, limiting the appeal of non-yielding assets like gold.
Technical Support Levels in Focus
On the technical front, gold remains vulnerable after failing to stage a meaningful recovery. "Gold has only seen a minor bounce and the subsequent fall leaves the spotlight back on key technical support from the 38.2% Fibonacci retracement of the 2022/2026 uptrend at US$4,075/oz," the WGC said. A decisive strengthening of the dollar could increase the likelihood of gold breaking below this support level, potentially leading to deeper corrections.
Geopolitical Risks Offer Some Support
Despite the bearish outlook, geopolitical risks continue to provide some support for bullion prices. Ongoing tensions in the Middle East, uncertainty surrounding negotiations involving Iran, and concerns over global inflation dynamics are expected to keep safe-haven demand intact. However, the WGC observed that while global gold ETF flows turned positive during the week, options traders remain net short in the near term, indicating cautious market sentiment.
