FX.co ★ Gold continues to struggle, but there is potential for a rally

Gold continues to struggle as prices trade below $1,900 an ounce and the Federal Reserve's monetary policy decision next week is likely to continue putting pressure on the metal. But surprisingly, some market strategists still see upside potential through the rest of the year.In a report released on Monday, Scotiabank senior economist Marc Desormeaux said that despite the recent drop of more than 5% from $2,000, gold could still average around $1,900 this year, up from the previous forecast of $1,800.

Markets are expecting the Fed to raise interest rates by 50 basis points and cut its balance sheet by $95 billion. In fact, the CME FedWatch Tool even said interest rates may rise to 3.25% by the end of the year.But even though the Fed has plans to aggressively tighten interest rates, Desormeaux noted that inflation will remain high. This is because the central bank will avoid the most aggressive course of policy action later this year, fearing that economic growth will slow down too much. Accordingly, that will prompt a wide-ranging rise in commodity prices. For example, Scotiabank forecasts that nickel could rise by 50% this year, while oil coild average around $103 per barrel.Desormeaux added that gold prices will also be influenced by the ongoing geopolitical tensions in Ukraine.