As gold (GC=F) hovers near record highs, James Steel, HSBC’s chief precious metals analyst, joins Morning Brief hosts Brad Smith and Seana Smith to discuss what to expect from the gold market.

“I think we're going to see increasing resistance” from current levels, Steel says, explaining, “There's a couple of things that would imply that the market is going to run into some resistance. One is that jewelry, underlying physical demand, is down. Jewelry is down. Fifty percent of all physical demand for gold is in jewelry. Most of that is in the non-OECD world. That demand is slowing because of high prices. They're very price-elastic. Coin and bar demand is slowing as well.”

“These changes in the physical demand will often take a very long time to push into prices because right now, we have a lot of momentum buying in the market and a lot of technical buying, and a lot of it predicated off of expectations of more rate cuts. So near term, we probably have a little bit more upside, but we're a little suspicious of it above $2,600. That's not to say that we can't move a little higher in the near term, but there are some roadblocks ahead.”

The analyst adds that gold going higher depends on the Federal Reserve’s rate cuts. “Gold does have a history of rallying during Fed rate-cutting cycles, but much will depend on how much of this is baked into the price already. And certainly, after the 50 basis point cut, perhaps we won't see cuts quite that aggressive.” Steel forecasts a series of 25 basis point cuts at each Fed meeting for the rest of the year, which he says is largely baked into the price.

He says “a lot will depend on how the dollar reacts. We're sort of looking for a somewhat firmer dollar, not simply because the Fed is cutting, which would tend to be negative for the dollar, but because other central banks are also going to cut and also that the US economy is doing well."

On central bank purchases, Steel says, “There's very good reasons that a central bank would want to own more gold, but they will also be price sensitive, and we are at very high prices, and if they're playing a long game, they don't have to rush into the market. I think we're likely to see them moderate purchases in the second half of the year, which may also create a little bit of headwind for gold.”

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post was written by Naomi Buchanan.