"Gold has been caught between sharper rate-hike expectations and concerns over prolonged high inflation if the monetary policy fails to soften economic activity and bring inflation lower," said Standard Chartered precious metals analyst Suki Cooper.
Writing for Kitco News, Anna Golubova reports that this inaction has led to gold being largely range-bound and steady despite heavy volatility witnessed across other assets. The big macro expectation for the rest of 2022 is for the focus to shift from inflation to slowing growth and recession risks, which is already happening, said Cooper.
"Gold continues to benefit from safe-haven demand given elevated geopolitical risk, as well as concerns over market volatility amid lower equity markets; however, the premium has been eroded," Cooper wrote in a recent report.
This is likely to lead to lower gold prices in the second half of the year, according to the analyst. "Rising recession risk is preventing outright short positions for now, but we expect gold to revert to tracking real yields for the rest of 2022, pressuring gold prices lower (albeit with a higher floor given the physical market response to lower prices)," she said.
Standard Chartered's gold price outlook sees the precious metal at $1850 during the third quarter of the year, which is higher than gold was at the time of writing. August Comex gold futures were last trading at $1,821.80, down 0.16% on the day.
"Aggressive rate hikes typically weigh on gold prices, and we expect this to be the case during the current Fed hiking cycle. However, recent shifts in gold positioning have deviated from the historical trend.
"Whereas positioning is typically scaled back ahead of the first hike, this time, positioning increased ahead of the first Fed hike in March as geopolitical risk premium offset concerns about higher rates," Cooper pointed out. "Subsequently, interest has fallen (rather than recovering) in the three months since the first hike.
"Despite this scaling back, net fund length is still elevated compared to previous cycles, suggesting further downside risk to gold prices as inflation eases."
Cooper noted that data to keep a close eye on over the summer include durable goods orders, wholesale inventories, and personal spending.
Also starting to work in favour of gold is the physical market demand, which seems to be waking up.
"China's latest trade data shows that demand for precious metals remained subdued in May but did not see a further sharp deterioration, despite a second month of lockdowns.
"India's gold imports rebounded in May, more than tripling month-on-month and rising more than eight times from year-ago levels.
"Swiss trade data confirms these trends. May data shows an uptick in shipments to key physical hubs, suggesting that prices were well supported by the physical market over the past month," Cooper summarised.