The Federal Reserve’s potential rate hike pause next week could just be one reason to stay bullish on gold despite choppiness in the yellow metal now, analysts at Citigroup and Commerzbank said Thursday.

Gold is expected to average $1,965 an ounce in the near term, analysts at Citigroup said as they turned neutral on the yellow metal from its previous target of $1,915-$2,100. Even so, “fresh bullish legs” could emerge in the medium term, they said.

Commerzbank said its assumption was that the Fed will not want to raise rates further after its pause, to avoid over-tightening of credit conditions. “If our experts are right, the gold price should rise in the coming months,” said Commerzbank, which maintains forecasts of $2,000 and $2,050 for the third and fourth quarters, respectively.

The front-month gold contract on New York’s Comex settled at $1,978.60 an ounce on Thursday, up $20.20, or 1%, on the day. For the week, it was up 0.5%, the same as the previous week.

The spot price of gold, which reflects physical trades in bullion and is more closely followed than futures by some traders, was at $1,965.76 by 16:30 ET (20:30 GMT), up $25.75, or 1.3% on the day. For the week, spot gold was up nearly 1%, adding to the previous week’s near flat close.

Bets for a Fed rate pause have grown despite higher weekly unemployment claims among Americans.

According to Investing.com’s Fed Rate Monitor Tool, there was a 73.7% chance that the central bank will stand down from a rate hike when its policy-makers sit on June 14.

To fight inflation, the Fed has raised interest rates by 500 basis points, or 5%, over the past 16 months, bringing them to a peak of 525 basis points, or 5.25%.

Ed Moya, analyst at online trading platform ONDA, said gold’s choppiness in recent weeks was due to a lack of conviction over the economy that hadn’t helped tip the market’s balance either way.

Gold traders now had their eyes on the next inflation reading due Tuesday from the U.S. Consumer Price Index report for May, Moya said.

The CPI hit 40-year highs in June 2022, expanding at an annual rate of 9.1%. Since then, it has slowed, growing at just 4.9% per annum in April, for its slowest expansion since October 2021. The Fed’s favorite price indicator, the Personal Consumption Expenditures, or PCE, Index, meanwhile, grew by 4.4% in April. Both the CPI and PCE are, however, still expanding at more than twice the Fed’s 2% per annum target for inflation.

Technically, gold could be poised for highs of $1,990 and beyond even if it heads back towards mid-$1,900 levels, said Sunil Kumar Dixit, chief strategist at SKCharting.com.

Gold and broader metal markets steadied on Friday and were set for a second week of gains, as the dollar retreated amid bets that the Federal Reserve will pause its rate hike cycle next week.

The yellow metal marked its best intraday gain in two weeks on Thursday, coming to the upper end of a trading range seen since mid-May as a jump in weekly U.S. jobless claims ramped up bets on a Fed pause.

The dollar marked its sharpest drop since late-March following the data, while Treasury yields also eased, which in turn benefited metal markets priced in the greenback.

Spot gold was flat at $1,965.04 an ounce, while gold futures rose 0.1% to $1,979.75 an ounce by 20:09 ET (00:09 GMT). Both instruments were up about 0.8% for the week.

Weakness in the labor market, coupled with some easing in inflation could see the Fed pause its rate hike cycle when it meets next week. But recent personal consumption and nonfarm payrolls indicators beat expectations, keeping uncertainty high over how the central bank will act.

Fed Fund futures prices show that markets are pricing in a nearly 76% chance the Fed will pause in June, with a 24% chance for a 25 basis hike.

Consumer inflation data is also on tap next week, offering more cues on future interest rate decisions by the Fed.

Gold’s medium, long-term outlook still uncertain

While the yellow metal is expected to see some support if the Fed pauses next week, its gains are expected to be limited with U.S. interest rates likely staying higher for longer this year.

Uncertainty over the Fed and the economy has also kept gold within a tight trading range since mid-May, after the yellow metal tumbled below the closely watched $2,000 an ounce level.

Still, worsening economic conditions this year could see increased safe haven demand for gold, especially as a pause in the Fed’s rate hike cycle saps support for the dollar.

Citi and Commerzbank analysts said on Thursday that a Fed pause is also expected to provide some bullish trends to gold.

Copper heads for second week of gains

Copper prices steadied on Friday, and were set for a second week of gains as they rebounded from six-month lows hit in May. Copper futures were flat at $3.7875 a pound, and were set to add 1.6% this week.

But despite the two-week recovery, the outlook for the red metal remains dour, especially in the face of worsening economic conditions across the globe. Signs of a slowing economic recovery in China have also greatly stymied sentiment toward copper.

Oil prices extended losses into Asian trade on Friday amid persistent fears that slowing economic growth will erode demand this year, with dismal readings from China further denting sentiment. 

Chinese inflation data disappoints 

Chinese consumer inflation shrank in May from the prior month, while factory gate inflation hit a seven-year low as an economic recovery in the country sputtered through the second quarter.

The readings, coupled with a string of weak economic prints from the country over the past two weeks, further undermined bets that a recovery in China will push oil demand to record highs this year. 

Fears of slowing demand also largely offset signs of tighter supply following a fresh production cut by Saudi Arabia, and put crude prices on course for a second straight week of losses.

Brent oil futures fell 0.7% to $75.44 a barrel, while West Texas Intermediate crude futures fell 0.7% to $70.81 a barrel by 22:18 ET (02:18 GMT). Both contracts were set to lose between 0.6% and 1.2% this week. 

While Chinese oil imports still rose through May, analysts attributed the rise largely to local refiners building inventory, and that fuel demand in the world’s largest oil importer still remained weak.

U.S. data also provides headwinds to crude 

Soft economic indicators from the world’s largest oil consumer also stymied crude markets this week.

U.S. inventory data showed that gasoline stockpiles unexpectedly rose in the past week, ducking expectations that fuel demand will increase as the travel-heavy summer season approaches.

Signs of a U.S. economic slowdown continued to trickle in, with recent indicators showing that business activity slowed through May, while the jobs market showed some signs of cooling. The weak readings pulled down the dollar, but offered little support to crude as traders fretted over worsening U.S. growth.

Reports of a U.S.-Iran nuclear deal, which could flood the market with more crude, also dented oil prices this week, although White House officials denied any such agreement.

Focus is now squarely on an upcoming Federal Reserve meeting next week, for more cues on how the central bank plans to approach policy amid worsening economic conditions.

Market expectations are largely skewed towards a pause in the Fed’s rate hike cycle, which could provide some near-term support to oil by weighing on the dollar.

But given that recent personal consumption and labor market indicators still beat expectations, traders remained uncertain over just what the Fed will signal.

This uncertainty also weighed on oil markets through the week.