Gold holds firm above $4,000 as investors look beyond inflation fears – Saxo's Hansen

While the gold market has been unable to gain enough momentum to break through initial resistance at $4,100 an ounce, one market strategist suggests that its continued consolidation is still good news for the precious metal. In his latest research note, Ole Hansen, Head of Commodity Strategy at Saxo Bank, noted that gold continues to hold its ground even as renewed chaos in the Middle East supports elevated oil prices. Reciprocal military strikes have resumed in the region after peace talks between the U.S. and Iran broke down. The renewed conflict has pushed Brent crude prices back above $80 a barrel. However, while the gold market has been unable to sustain consistent gains, it continues to hold solid support above $4,000 an ounce, which some analysts have said has become an important technical pivot point in the price action.

While the gold market continues to face significant downside risks, Hansen said the market’s resilience could indicate that investors are looking beyond near-term uncertainty and volatility. “While it is too early to conclude that the recent inverse relationship between oil and gold has broken down, the resilience around USD 4,000 indicates that investors are becoming less willing to sell aggressively into renewed inflation fears. The reason may lie in the distinction between the short- and longer-term consequences of an energy shock,” he said. Although short-term inflation fears have driven real interest rates higher and forced markets to anticipate interest rate hikes from the Federal Reserve, Hansen noted that persistently elevated inflation could start to weigh on economic activity. “Should those concerns begin to outweigh inflation fears, gold’s defensive qualities may once again become the dominant driver,” he said.

Helping provide some support for gold this week was the release of cooler inflation data. On Tuesday, the latest Consumer Price Index (CPI) showed a sharp drop in energy prices, significantly easing inflation pressures, with consumer prices falling 0.4% during the month. Headline inflation over the past 12 months rose 3.5%, down sharply from the previous month's reading of 4.2%. Meanwhile, annual core inflation slowed to 2.6%, down from 2.9% reported in May. Although the ongoing war with Iran remains a major risk, analysts note that the latest data show the U.S. economy remains fairly resilient and can still recover quickly from the global energy crisis. This resilience is helping to anchor inflation expectations.

In previous comments to Kitco News, Hansen said that, despite the uncertainty, he does not expect the Federal Reserve to raise interest rates this year. However, he added that gold will continue to consolidate as the market waits for new information. “Gold continues to search for direction following a sharp correction since January, with recent price action increasingly reflecting the market’s struggle to determine whether inflation or slowing economic growth, combined with a returning focus on fiscal debt concerns and currency debasement, will become the dominant macro theme during the second half of the year,” he said. “For now, we continue to see gold trading within a broad USD 3,950 to USD 4,200 range. A sustained break above USD 4,200 would indicate investors are beginning to look beyond inflation and focus instead on the broader economic consequences of a prolonged energy shock. Conversely, a move below USD 3,950 would suggest inflation concerns, higher bond yields and a stronger dollar have once again taken control of the narrative.”