$4,400 per ounce to determine gold's ability to continue its rise

Gold prices ended last week’s trading higher at $4,377 per ounce, posting weekly gains for the second consecutive week, supported by a decline in the US dollar and reduced expectations for an interest rate hike by the US Federal Reserve at its upcoming September meeting.

A report issued by Dar Al-Suwaib Gold Company stated that the $4,400 per ounce level will determine gold’s ability to sustain its upward momentum. The report noted that gold’s rise last week followed a series of weak US economic data that bolstered expectations of an economic slowdown and eased the likelihood of tighter monetary policy.

The report clarified that US retail sales fell by 0.6% in July, marking the first decline after five consecutive months of growth, coming in worse than market expectations which had pointed to a 0.1% increase. It added that US inflation data during the week showed continued easing of inflationary pressures, as both consumer and producer price indices were more moderate, supporting expectations that the Federal Reserve may not proceed with a rate hike in September.

It noted that the probability of a September rate hike dropped to around 31%, compared to approximately 55% the previous week, a positive factor for gold amid the declining opportunity cost of holding the precious metal. The report mentioned that the US dollar weakened during the week as investors reduced their bets on tighter US monetary policy, while falling yields on US Treasury bonds provided additional support for gold prices.

It highlighted that the preliminary reading of the US Consumer Confidence Index fell from 55 points in July to 51 points in August, reflecting growing concerns about economic strength and consumers’ ability to absorb higher prices. One-year inflation expectations rose to 4.3% from 4.2%, while long-term expectations remained steady at 3.3%.

On the geopolitical front, the report stated that developments in the Middle East and the fate of the Strait of Hormuz remained among the key factors influencing markets. It explained that despite the continued closure of the strait, oil prices did not surge sharply, which helped limit fears of a strong inflationary wave.

It noted that demand from central banks continues to provide fundamental support for gold, with China adding approximately 20 tonnes to its gold reserves in July, marking the 21st consecutive month of purchases.

The report clarified that investors’ attention this week is focused on the minutes of the US Federal Reserve meeting, which featured three dissenting votes, potentially offering important signals about the future path of interest rates and the direction of monetary policy in the coming months, as well as the minutes of the European Central Bank meeting.

It added that markets are awaiting US economic data including initial manufacturing and services PMI indices, housing indicators, building permits, trade conditions, and industrial production, alongside a range of other data that may help assess the strength of the US economy.

The report mentioned that PMI indicators will also be released for the Eurozone, Japan, Australia, India, and the UK, while the UK and Canada will publish inflation and retail sales data.

It pointed out that European markets are awaiting investor confidence indicators for the Eurozone and Germany, while attention in Japan is directed toward second-quarter GDP data, the trade balance, and the inflation rate.

It added that China will release industrial production, retail sales, and housing price data, alongside awaited labor market data from Australia, the UK, and Canada, and the Swedish Central Bank’s decision on interest rates.

The Dar Al-Suwaib report concluded that gold’s movements in the coming period will remain primarily linked to the trajectory of the US dollar, expectations for US interest rates, and geopolitical developments in the Middle East.