Today, the precious metals market experienced significant volatility, with the international gold price falling below $4,600 per ounce.
Geopolitically, the situation between the US and Iran has reached a stalemate following Iran's rejection of the US negotiation proposal. This week, former US President Trump stated that his patience with Iran is wearing thin, leading to a gradual decline in market optimism regarding the prospects for talks. While market risk appetite improved ahead of Trump's visit to China, resulting in varying degrees of gains for commodities and stock markets, the positive sentiment has since waned as the supportive factors have been largely exhausted, leading to another shift in market mood.
Regarding interest rate outlook, this week the US Senate officially confirmed Kevin Warsh to succeed Jerome Powell as the next Federal Reserve Chair through a vote. His policy inclination towards balance sheet reduction presents a potential downside risk for future financial markets. It is anticipated that Warsh's first appearance at the June FOMC meeting will create significant waves in the market. On the data front, the US reported a 3.8% year-on-year increase in April CPI, significantly higher than March's 3.3% and the highest level since May 2023. The annual PPI rate recorded 6%, substantially exceeding the expected 4.9%. With inflation data rising across the board, the FedWatch tool indicates that expectations for a rate hike this year have increased from less than 20% last week to over 40%. The US dollar has risen for five consecutive days, accompanied by US Treasury yields reaching a cyclical high, which has put pressure on gold prices.
Over the past two years, gold prices have experienced a historic rally driven by a combination of escalating global geopolitical tensions, challenges to US dollar credibility, and ample liquidity. Currently, the US debt problem remains unresolved, and a potential US-Iran war could accelerate the decline of US hegemony, meaning the core logic for this round of gold price increases remains intact. Although there have been occasional reports of central banks selling gold, global central banks maintained a net purchase of 244 tons in the first quarter, a historically high level. The People's Bank of China has increased its gold reserves for 18 consecutive months, with a slight month-on-month increase. However, the stability of the long-term logic does not preclude changes in the medium to short-term trend. Currently, the most significant marginal variable affecting gold prices stems from the shift in the outlook for monetary easing. As market expectations for Federal Reserve rate cuts have receded, global gold ETFs saw a net outflow of 84 tons in March following nine consecutive months of inflows, marking the worst performance since September 2022. This reflects a change in market expectations regarding the interest rate outlook, where rising opportunity costs are dampening institutional enthusiasm for gold investment.
Furthermore, India, the world's second-largest gold consumer, recently raised import tariffs on gold and imposed restrictions on duty-free gold import quotas, aiming to reduce gold imports, alleviate foreign exchange pressure, and stabilize its currency. While this event is not a decisive factor for gold prices, it highlights the numerous disturbances emerging across various fronts amid the current Middle East tensions, which are undermining confidence in a sustained gold price recovery.
Overall, the high uncertainty in the global political and economic landscape amidst unprecedented changes and the prospect of US hegemony decline support the long-term trend for gold. However, at this stage, inflation and interest rate expectations represent the most significant marginal variables. The Federal Reserve is highly likely to maintain a wait-and-see stance this year, and hawkish statements from various central banks are exerting downward pressure on gold prices. In the short term, US-Iran negotiations remain unresolved. Although both sides seek an exit, they are likely to adopt a tough stance to secure greater leverage. The timing for the reopening of the Strait of Hormuz has become a core factor influencing the direction of global commodities. Market sentiment fluctuates with war-related information, leaving gold prices temporarily lacking clear directional guidance. It is advisable to continue viewing gold within a $4,000-$5,000 per ounce range. The corrective wave pattern formed after the international gold price peak of $5,600 has not yet reversed, and the adjustment may persist for some time. Patience is required to await better risk-reward opportunities for positioning.
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