Strategist: Gold prices will consolidate in the $4000 range throughout the summer, with a new surge of over $1,000 expected in the next 6 to 9 months

Forex Network, July 28—— This summer, gold prices are expected to fluctuate around $4,000, with high real interest rates suppressing any rebound, and the price has failed to breach the $4,100 mark. State Street strategists believe the market's expectations for Fed rate hikes are overly aggressive. Global central bank gold purchases, robust physical demand from major Asian countries, and massive global debt will provide long-term support. The base scenario sees gold prices reaching $4,750–$5,500 in the next 6 to 9 months, while next week’s non-farm payroll data could be the key catalyst to break the current range.

Gold prices are highly likely to consolidate and form a bottom around $4,000/oz this summer, as the market awaits clear guidance on the Fed’s monetary policy.

Aakash Doshi, Head of Gold Strategy at State Street Global Advisors, believes the market is currently too aggressive in its expectations for Fed rate hikes, and hawkish expectations are likely peaking. Although the 10-year real yield is at a high level, restricting gold's rebound and putting pressure on the $4,100 mark, the $4,000 support remains solid. In the medium and long term, the global trend of central bank gold buying, strong physical demand from major Asian countries, and record-high global debt remain unchanged.

. Non-farm payroll data and US Treasury yield expectations will be the key catalysts for short-term market moves.

Short-term Market: Range Trading Continues, Awaiting Fed Policy Signals

Gold prices have repeatedly failed to sustain above the $4,100 level, remaining stuck in a consolidation range. Currently, the 10-year real yield has risen to about 2.4%, approaching the highs last seen in October 2023, and the high actual yields continue to be a major bearish factor for gold.

However, hawkish market expectations for Fed tightening are likely near their peak. Institutions have already priced in higher real yields in advance, and it's likely the Fed will remain on hold for the rest of the year. Until there is more clarity on monetary policy, gold is unlikely to trend in one direction, and the key range for the summer remains around $4,000.

Key Market Catalyst: Non-farm Payroll Data to Drive Rate Expectations

The July non-farm payroll report, due next week, is the most important short-term indicator to watch. Only 57,000 non-farm jobs were added in June, well below expectations.

If this employment data weakens again, the market will quickly revise down rate hike expectations for the year, sending US Treasury yields lower. If the 2-year yield falls below 4%, gold prices could rally to the $4,500–$4,750 range within this year, reopening the space to challenge the $5,000 level. Conversely, strong employment would reinforce hawkish expectations and keep gold in a volatile range.

Gold’s Multiple Underlying Supports Remain Intact

Although rate hike expectations are dampening gold ETF investment, other pillars of gold demand remain resilient:
1. Central banks continue to increase gold reserves, with the long-term gold buying trend unchanged;
2. Major Asian countries have strong physical demand, and gold imports in June hit a two-year high, providing solid physical support;
3. As long as gold ETF outflows do not accelerate, keeping current levels of holdings will effectively support prices.

From a broader macro perspective: The US-Iran conflict is pushing up government spending worldwide, and total global debt has reached a record $353 trillion. As foreign holders keep reducing their US Treasury holdings, central banks are shifting to gold, reinforcing gold’s strategic reserve value. Even if the Fed remains hawkish, long-term funds will continue to allocate gold as a hedge against fiat currency and debt risks.

Gold Price Target Outlook

Institutions’ base case scenario: Gold prices are expected to move within the $4,750 to $5,500/oz range in the next 6 to 9 months, with potential to break above $5,000 in the first half of next year.

In the short term, the market’s rhythm will be highly dependent on rate expectations, and a change in expectations is essential for the next major rally.

Summary

In the short term, gold prices are constrained by high real yields, fluctuating around $4,000 this summer while awaiting guidance from Fed policy and non-farm payroll data. In the medium to long term, global high debt, ongoing central bank gold buying, and robust physical demand in major Asian markets continue to provide solid support. State Street judges that the next thousand-dollar gold rally will be to the upside; if employment data weakens and rate expectations cool, gold could challenge the $4,750 level this year.


Spot gold weekly chart Source: EastForex

Beijing Time, July 28, 12:10 (UTC+8) Spot gold quoted at $4,046.86/oz