Gold price prediction: Why is gold not rising too much despite lower oil prices?

Sharp decline in oil prices is not helping precious metals much. (AI image)

Gold price prediction today: A consistent rise in gold prices due to drop in oil prices is being constrained by hawkish outlook from central banks which are signalling a possible rate hike to keep inflationary pressures in check, says Praveen Singh, Head Currencies and Commodities, Mirae Asset ShareKhan.Gold Performance:

On June 22, spot gold prices gained a mild upward traction on decline in oil prices coming on tentative positive developments surrounding the US-Iran talks. On June 22, the yellow metal traded between $4136 and $4221. However, it lost its momentum as the Dollar Index rose.

At the time of writing this article on Monday night, the metal was trading with a gain of 0.60% at $4186.

Geopolitics and oil:

The US Vice President Vance, dismissing weekend rifts between the US's and Iran's negotiators, hailed the talks as quite positive. Both the countries are engaged in technical discussions over key issues like Iran's nuclear ambitions, sanctions, resolving the conflict, etc. as the sixty-day ceasefire period has started. These negotiations are aimed at securing a lasting peace deal in the Middle East.

The talks reflect a possibility of Iran getting its frozen funds, though it is yet to be made explicitly clear.

As per the Iranian foreign minister Aragchi, the mediators are said to have been able to ease some tension related to the Israel-Lebanon issue. Iran and the US have established a communication line to avoid miscommunications and mishaps related to the Strait of Hormuz traffic.

Vance added that Iran has agreed to allow international inspection of its nuclear program, as under the Obama deal. As Israel's attacks on Lebanon remain a thorny issue, he said Monday that Israel, Hezbollah, Lebanon and other regional actors will participate in a newly established deconfliction mechanism aimed at preventing renewed escalation along Israel's northern border.

As per the US, the Strait of Hormuz remains open, though US officials have opposed any Iranian tolls.

On the flip side, critics think that the Trump Administration may not secure a deal as good as Obama's nuclear deal reached in 2015.

It is to be noted that IAEA inspectors have not been allowed to verify the state of Iran's enriched uranium since the US bombed nuclear sites last year. Inspections may begin as soon as Monday. However, according to Iran’s official IRNA news agency, Foreign ‌Ministry Spokesperson Esmaeil Baghaei said Tehran has ⁠not accepted any new commitments. He added that any such commitments ⁠will continue in accordance with current procedures, ‌subject ⁠to the ‌approval of Iran's parliament and the decisions ⁠of the Supreme National Security Council.

US Treasury Secretary Scott Bessent said that the United States would waive sanctions on Iranian oil in exchange for the opening of the Strait of Hormuz and granting permission for International Atomic Energy Agency (IAEA) inspectors to enter Iran. Iran would be granted a 60-day temporary license to produce, deliver and sell Iranian oil.

As per Tasnim, the semi-official news agency in Iran, Iran's policy of nuclear ambiguity is one of the most important assets, a collapse of this will serve only the enemy.

Israeli PM Netanyahu said that Israeli troops in southern Lebanon have full freedom of action to thwart any direct or emerging threat to them or to the residents of northern Israel. IDF will remain in the security zone in southern Lebanon for as long as necessary to protect Israeli citizens.

Crude oil prices fell yet again Monday. At the time of writing, Brent oil futures, on track of a third consecutive weekly loss, were down 3% for the day. Oil futures have collapsed 38% from the cycle high of $126.41 reached on April 30.

China has imposed export controls against MP Materials Corp. and USA Rare Earth Inc. to safeguard national security and interests. It has prohibited these US companies from access to items that can be used for both commercial and military purposes.

US Dollar Index and yields:

At the time of writing, the US Dollar Index was trading 0.15% higher at 101.01 as it looks set to challenge the cycle high of 101.12 reached on June 19.

The US bond market was closed on June 19 to observe the Juneteenth holiday. Today, bonds fell on rate hike concerns. At the time of writing, 2-year yields at 4.23% were up 1.2% for the day, while ten-year yields, regaining the psychologically important level of 4.50% for the first time since June 12, were up more than 1%.

Data and event roundup:

As expected, China's Central bank, in its decision on June 22, kept one-year and five-year Loan Prime Rates unchanged at 3% and 3.5%, respectively.

US data released last week were a mixed bag: industrial production (May) and housing starts (May) lagged the forecast, while retail sales advance (May) beat the estimates yet again.

Central Bank Watch:

Despite sharply lower oil prices, traders see the US Federal Reserve hiking the Fed Fund rate in September, while a second rate hike is expected in March.

The European Central Bank is expected to deliver its second-rate hike in December as traders expect the Bank of England will also eventually hike rates in December.

ETFs and COMEX Inventory:

Total known global gold ETF holdings rose for the second day to rise to 97.36 MOz on June 19. ETFs have seen a net outflow for four weeks in a row and are down 1.59 MOz (49.44 tons) YTD as investors exit some of their positions on rate hike fears.

Hong Kong stocking up gold for clearing launch:

Bloomberg has reported that at least four of the 11 banks participating in Hong Kong’s new gold clearing system are importing large bullion bars in preparation for the mechanism’s planned launch in July. Last week, Singapore announced its own plans to launch a clearing mechanism by the end of the year.

Upcoming data:

Major US data on card this week include S&P PMIs (June 23), PCE Price Index (June 25), final reading of Q1 GDP (June 25) and University of Michigan consumer sentiment and inflation expectations (June 26).

Europe's PMIs will be released on June 23.

Gold Price Outlook:

Sharp decline in oil prices is not helping precious metals much as central banks have renewed their focus and vigilance on curbing inflation.

The US dollar, previously constrained by expectations of a more dovish Fed under Warsh—given his views that AI-driven productivity could help contain inflation, along with Trump’s preference for lower rates—is now likely to strengthen further in the near term following a hawkish shift by the Federal Reserve.

ETF flows are not very inspiring.

Safe haven flows are muted as risk assets continue to do well.

In the short term, gold prices can fall to $4000, while a slide to $3800 is quite possible. However, downside is expected to remain limited from the current levels. Ongoing sell-off is a good opportunity to build positions for medium to long term perspectives.

Resistance is seen at $4250/4300/$4400.

(Disclaimer: Recommendations and views on the stock market, other asset classes or personal finance management tips given by experts are their own. These opinions do not represent the views of The Times of India.)