GOLD OPEC+ and NFP to be decisive for gold prices next week

Gold prices are losing their appeal as investors' inflation expectations have fallen. Since the Fed's change in tone last week, inflation expectations have fallen sharply and U.S. real rates have rebounded, sending gold to a two-month low of $1765.

This time, the rebound in real rates was not due to a rise in nominal yields, but to a decline in inflation expectations. While market participants feared that inflation would spike in recent months, this no longer seems to be the case. Most commodities have started to decline, bringing 10-year inflation expectations down from a high of 2.5% on June 10 to 2.34% on Wednesday and 5-year inflation expectations down from 2.7% to 2.5% over the same period.

For now, rising oil prices are holding back inflation expectations. A key catalyst for markets will be next week's OPEC+ meeting, where members will seek to agree on their production levels. A higher than expected increase in their production would put pressure on oil prices, inflation expectations, which should put further pressure on gold.

Other factors to watch are economic statistics, especially US employment data. Jerome Powell reiterated on Tuesday that the Fed would keep its eyes on a broad set of labor market statistics. In practical terms, the faster the labor market moves toward its pre-crisis level, the faster the Fed will normalize its monetary policy and thus the more likely it is that nominal and real yields will rebound.

Real rates have already rebounded slightly since the Fed's change in tone last week. The 10-year has gone from -0.90% to -0.83% and the 5-year has gone from -1.74% to -1.60%. The correlation between the gold price and real rates is extremely negative (-90%) which means that a rise in real rates would put further pressure on the gold price.

In terms of technical analysis, the gold price is consolidating on a key support zone at 1765-1755 in the short term. A pullback below this support zone would pave the way for a continuation of the decline that began last week to the March-April double bottom at $1675.

(Chart Source: Tradingview 24.06.2021)

The Bollinger Bands of the 4-hour time unit around the $1795 will be an interesting indicator to follow in the coming days. The price's exit from its Bollinger Bands will indicate the next move. A breakout from the top of the Bollinger Bands would pave the way for a rebound in gold.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.