Remarks overnight from the most dovish Fed member, James Bullard, helped to give the dollar a lift and in turn has cast some doubts surrounding gold's meteoric rise in the past month. With Bullard having ruled out a 50 bps rate cut in July, the focus now will be on whether or not the Fed is of the view that they only need an "insurance rate cut" rather than introducing an easing monetary policy cycle.
A lot of that will hinge on how trade talks progress over the next few weeks/months and that puts added weight on this week's Trump-Xi meeting. Should trade talks resume and things start looking more optimistic, there's scope for the Fed to play the waiting game until things turn for the worse again.
In that lieu, the fundamentals supporting gold's solid rally in the past month will be knocked down a notch or two.
Currently, gold is back to testing key near-term levels as sellers drive price back towards the 100-hour MA (red line). For buyers, hold above and the near-term bias remains more bullish but a break below will see that bias turn more neutral instead.
This will be a key level to watch alongside support at the $1,400 handle over the next few days ahead of the Trump-Xi meeting.
Looking at the bigger picture:
Despite gains being eroded over the past few sessions, gold is still on course for a stellar performance in the month of June. Price still sits at near six-year highs and is on course to break above the 100-month MA (red line).
I reckon a hold above $1,400 over the next week will be a crucial psychological level for buyers to keep up the momentum. Otherwise, should trade talks over the weekend result in something more positive, we could see a near-term correction in gold following the stunning rise over the past few weeks.
But as long as major central banks around the globe continue to favour adding more stimulus and introducing more easing policies, that will give some backing to gold to stay underpinned in 2H 2019. Though without the Fed starting an easing cycle, that will take away some of the allure for gold to head back towards retesting the highs seen in 2011-12.