Gold prices unlikely to make further gains as risk appetite improves, experts say

Gold prices rose slightly on Monday, but the precious metal is likely to struggle to make further gains amid improved market sentiment. 

Expectations of more frequent and sooner-than-anticipated interest rate cuts by the US Federal Reserve (Fed) could weaken the greenback. 

This, in turn, may support dollar-denominated commodity prices, as a softer greenback makes gold more affordable for international purchasers.   

“Nonetheless, improved risk sentiment due to the US-China trade agreement, along with the ceasefire deal between Israel and Iran could diminish bullion's appeal as a traditional safe-haven asset,” Lallalit Srijandorn, editor at FXStreet, said in a report. 

At the time of writing, the most-active gold contract on COMEX was at $3,291 per ounce, up 0.1% from the previous close. 

Among other precious metals, silver prices on COMEX were 0.4% lower at $35.91 per ounce, while platinum was 1.8% higher at $1,375.7 an ounce. 

Risk appetite rises

“The slowdown in geopolitics has offered an opportunity for investors to start taking profit because of the forward-looking prospects of some kind of kinetic war with China and the developments in the Middle East,” said Daniel Pavilonis, senior market strategist at RJO Futures.

Bloomberg reported on Friday that top advisers to US President Donald Trump anticipate finalising agreements with up to a dozen of the country's largest trading partners by the July 9 deadline.

Additionally, US Treasury Secretary Scott Bessent announced on Friday that Washington and Beijing have successfully resolved issues concerning the shipment of rare earth minerals and magnets.

David Morrison, senior market analyst at Trade Nation said: 

Gold prices were around $3,280 this morning, a minor support level it has maintained over the last month.

Central banks purchase more gold

Central banks continue to show strong demand for gold. 

A recent survey by the Official Monetary and Financial Institutions Forum (OMFIF) revealed that one-third of the 75 central banks questioned intend to purchase gold within the next one to two years.

Within the next decade, 40% of central banks plan to take this action.

The euro and the Chinese renminbi, alongside gold, are gaining favor as 70% of central banks report that the political climate in the US is a deterrent to investing in the dollar.

Last year, an ECB study indicated that the euro dropped to third place among leading reserve currencies, behind gold. 

This trend is further supported by a recent World Gold Council survey, which revealed that central banks plan to increase their gold purchases over the next year.

“Central bank gold purchases therefore remain an important support factor for the gold price,” Carsten Fritsch, commodity analyst at Commerzbank AG, said. 

Technical outlook bearish

The further recovery in gold price appears at risk as the daily technical setup indicates bearish potential, Dhwani Mehta, senior analyst at FXStreet, said in a report.

Market participants will remain focused on trade negotiations. Additionally, speeches from several Federal Reserve policymakers later on Monday will be closely scrutinised.

The daily moving average convergence divergence (MACD) has returned to neutral, but its downward trajectory and gradient indicate growing downside momentum, according to Trade Nation’s Morrison.

Gold had closed last week under the 50-day simple moving average (SMA) support level of $3,325.

Additionally, sellers breached the 50% Fibonacci Retracement (Fibo) of April's record rally, settling at $3,297.

“However, with the 14-day Relative Strength Index (RSI) remaining below the 50 level, any recovery attempts are likely to be short-lived,” Mehta said. 

If the selling interest intensifies, the bearish target is seen at $3,168, Mehta added.