Gold prices are likely to consolidate and form a base around $4,000 per ounce this summer, as the market awaits clearer guidance from the Federal Reserve on monetary policy.

Aakash Doshi, Head of Gold Strategy at State Street Global Advisors, believes the market is currently pricing in overly aggressive rate hike expectations from the Fed, and that hawkish sentiment may have peaked. While high 10-year real yields are suppressing gold's rebound and keeping the $4,100 level under pressure, the $4,000 support level remains solid. In the medium to long term, the logic of continued central bank gold purchases, strong physical demand from major Asian economies, and record-high global debt levels remains unchanged. The baseline expectation is for gold to trade between $4,750 and $5,500 over the next 6 to 9 months. Non-farm payroll data and US Treasury yield expectations will be key short-term catalysts.

Short-Term Market: Consolidation Continues, Awaiting Fed Policy Signals

Gold has repeatedly failed to hold above $4,100, remaining trapped in a range. The current 10-year real yield has risen to near 2.4%, approaching its highest since October 2023, creating a persistent headwind for gold. However, the market's hawkish expectations for Fed tightening have likely peaked. Institutions have already priced in the rise in real yields, and the Fed is likely to remain on hold this year. Gold is unlikely to break into a clear trend until the monetary policy outlook becomes clearer, with the core consolidation range for the summer seen around $4,000.

Key Catalysts: Non-Farm Payrolls to Dominate Rate Expectations

The July non-farm payrolls report, to be released next week, is the most important short-term indicator. June's report showed only 57,000 new jobs, significantly missing expectations. If employment data weakens again, the market could quickly revise its rate hike expectations for the year, pushing US Treasury yields lower. Should the 2-year yield fall below 4%, gold could target $4,500-$4,750 within the year, reopening the path toward $5,000. Conversely, strong employment data would reinforce hawkish expectations, keeping gold in its current range.

Multiple Underlying Supports for Gold Remain Intact

Despite rate hike expectations weighing on gold ETF investment demand, other pillars of the gold market remain resilient: 1. Central banks continue to increase their gold reserves, with the long-term buying trend unchanged. 2. Physical demand from major Asian economies is robust, with gold imports in June hitting a two-year high, providing solid physical support. 3. As long as gold ETF outflows do not accelerate significantly, maintaining current holdings will provide effective support for prices.

On a deeper macro level, geopolitical tensions are driving up fiscal spending globally, with total global debt reaching a record $353 trillion. As overseas investors continue to reduce their holdings of US Treasuries, central banks are turning to gold, and its strategic reserve value is becoming increasingly prominent. Even if the Fed maintains a hawkish stance, long-term capital will continue to allocate to gold as a hedge against fiat currency and debt risks.

Gold Price Target Outlook

Institutional base-case scenarios project gold trading in a range of $4,750 to $5,500 per ounce over the next 6 to 9 months, with a potential breakout above $5,000 in the first half of next year. In the short term, price action is highly dependent on interest rate expectations, and a shift in those expectations is a necessary condition to trigger a new rally.

Summary

In the short term, gold is constrained by high real interest rates and will consolidate around $4,000 this summer, awaiting direction from Fed policy and non-farm data. Over the medium to long term, the supporting logic of high global debt, continued central bank buying, and strong physical demand from major Asian economies remains fully intact. State Street's analysis suggests that gold's next multi-thousand-dollar move will be to the upside. If employment data weakens, leading to a cooling of rate expectations, gold could target the $4,750 level later this year.