After falling below the 200-day moving average, the spot gold price is attempting to stabilize, maintaining at $4,327.42 per ounce at the time of writing. Concerns over the Federal Reserve's (Fed) tightening monetary policy have offset the benefits of falling oil prices due to easing geopolitical tensions in the Middle East.
Goldman Sachs significantly revised its interest rate forecast following the strong May non-farm payroll data, predicting that the Fed will not cut rates this year, with the first rate cut window postponed to June 2027.
Technically, gold prices closed below the 200-day moving average for the first time since October 2023. Analysts generally expect a significant deterioration in the short-term technical pattern, with initial downside support at $4,230. If it falls further, it may test $4,100.
Rising Tightening Expectations Suppress Non-Yielding Assets
In May, U.S. non-farm payrolls far exceeded expectations, with the unemployment rate remaining at 4.3%. This strong labor market performance has significantly shaken market confidence in a policy shift. Saxo Bank analysts pointed out that although easing Middle East tensions have led to a decline in oil prices, reducing some inflation risks, the upcoming U.S. May Consumer Price Index (CPI) is expected to exceed 4% for the first time in nearly three years. According to CME tools, traders currently estimate that the probability of a Fed rate hike in December has exceeded 70%. In a long-term high-interest-rate environment, gold, as a non-yielding asset, is facing a direct challenge to its appeal.
Goldman Sachs Significantly Revises Interest Rate Path Forecast
Given the strong performance of the U.S. economy and labor market, Goldman Sachs has adjusted its forecast model for the federal funds rate. The institution originally postponed the rate cut from September to December this year, but the latest report suggests that the Fed will keep rates unchanged this year. Goldman Sachs analysts noted that the unemployment rate is expected to only moderately rise to just over 4%, insufficient to force policymakers to initiate a rate-cutting cycle. The most likely path for the Fed's decision-makers is to delay policy normalization until the macroeconomic impacts of tariffs, geopolitical conflicts, and artificial intelligence demand dissipate, and the core Personal Consumption Expenditures (PCE) price index approaches the 2% target level.
Technical Deterioration Triggers Bearish Shift
On the technical analysis front, spot gold prices closed below the 200-day simple moving average last Friday, marking a potential shift in the mid-term trend. Citi analysts in their latest assessment pointed out that breaking below this key technical level is usually seen as a negative signal, indicating further downside potential in the short term. Gold prices have fallen about 18% from previous conflict highs, fully reflecting the combined pressure of rising U.S. Treasury yields and a strengthening dollar index on the precious metals market. MUFG economists also believe that the macro expectation of prolonged high interest rates continues to exert heavy pressure on non-yielding assets.
Diversified Demand and Institutional Rating Downgrade
In addition to macro policy suppression, the fundamental support for gold is also showing signs of weakening. T. Rowe Price has downgraded its asset allocation rating for gold from overweight to neutral. Its portfolio manager pointed out that global central bank gold buying demand, one of the strong supports for gold prices, seems to be weakening, and some countries may mobilize gold reserves when facing capital flow or balance of payments pressures. Furthermore, as sub-sectors with higher growth potential, such as artificial intelligence infrastructure, continue to attract funds, gold faces more intense competition for existing funds in asset allocation. If the U.S. inflation data released on Wednesday exceeds expectations, gold prices technically face the risk of breaking below the $4,230 trend line and may accelerate towards the $4,100 stage low.
