graylingfish| A week's review of the gold market: Federal Reserve meeting minutes unexpectedly faltered and gold prices fell. Can PCE data reverse the short-term decline

Transferred from: Xinhua Finance

Xinhua Finance, Beijing, May 27th / PRNewswire-FirstCall-Asianet /-- International spot gold opened 2317 last week (the week from May 20 to May 24)Graylingfish.07 USD / oz, minimum 2325Graylingfish.26 US dollars per ounce, hitting as high as 2449.93 US dollars per ounce to close at 2333.7 US dollars per ounce, plunging 80.61 US dollars, or 3.33 per cent, for the week, the biggest weekly decline in eight months.

A series of exceeding expectationsGraylingfishUs economic data, hawkish minutes of FOMC meetings, and officials such as Federal Reserve Governor Waller have repeatedly stated that they are in no hurry to cut interest rates, pushing gold back up and down, with a week's earthquake approaching $125a.

In the first half of the new week, the United States lacks important economic data, and market participants will pay close attention to the comments of Fed officials. In the second half of the week, the market will be dominated by economic data, especially the core PCE data for April in the United States, which will be released on Friday. A better-than-expected data could boost the Fed's expectations of keeping interest rates unchanged in September and boost the dollar; conversely, lower-than-expected data could revive market optimism about progress against inflation and push gold higher.

Fed officials insist on "higher and longer" minutes accidentally release "Eagle"

Last week, several Fed officials issued cautious comments on interest rate cuts, suppressing the price of gold.

Mestre, chairman of the Liveland Fed, said last Monday that she no longer thought it was appropriate for the Fed to cut interest rates three times in 2024, which may have been too many.

Barr, vice chairman of the Federal Reserve, said interest rates need to remain at current levels for longer to bring inflation back to sustainable target levels. Jefferson, another vice chairman, reiterated that interest rates would remain unchanged until there was more evidence that inflation was falling.

Daley, chairman of the San Francisco Fed, said he did not see any evidence of the need to raise interest rates and was not confident that inflation would fall sustainably. Bostick, chairman of the Federal Reserve of Atlanta, said that stable interest rates after the start of the interest rate cut cycle are likely to be higher than in the past decade.

Fed Governor Waller said on Tuesday that it would take "a few more months" of good inflation data to consider cutting interest rates. Atlanta Federal Reserve Chairman Bostick said on TuesdayGraylingfishHe is in no hurry to cut interest rates, but wants to wait longer to ensure that inflation does not start to fluctuate.

While Fed officials took a tough stance to curb the rise in gold prices, the unexpected release of the "eagle" in the minutes of the Fed's May meeting released last week further dealt a blow to bullish sentiment in the gold market.

Fed officials were increasingly worried about inflation at recent meetings, and officials discussed the need to keep interest rates on hold for a longer period of time, or to cut rates in the face of a weak labour market, according to the minutes. Some officials note the risk that financial conditions are too loose and that long-term neutral interest rates may be higher than previously expected. Most crucially, it was mentioned in the minutes: "A number of participants mentioned that they were willing to further tighten policy and take appropriate action if the future risk becomes a reality."

After the minutes were released, the market reduced its bets on more than one rate cut this year. Spot gold pulled back sharply as traders took profits.

Strong US economic data poured cold water on expectations of interest rate cuts

While the Fed has taken a tough stance on the outlook for interest rate cuts, a number of economic data released last week have further "cooled" expectations of interest rate cuts.

The US composite purchasing managers' index (PMI), which tracks manufacturing and services activity by S & P Global, jumped to 54.4 in May, the highest level since April 2022, according to the data. Among them, the initial PMI of US Markit manufacturing industry reached a two-month high of 50.9 in May, while the initial PMI of US Markit service industry reached a 12-month high of 54.8 in May.

Meanwhile, initial claims for unemployment benefits in the United States fell to 215000 last week, and a strong labor market continues to support the economy.

By contrast, other data were mixed, with orders for durable goods rising 0.7 per cent in April, slightly lower than the 0.8 per cent increase in March, but much better than the 1 per cent decline widely expected by the Dow Jones. The University of Michigan consumer confidence index jumped to 69.1 in May, above expectations of 67.5 and a previous reading of 67.4. However, both one-year and five-year inflation expectations released at the same time have fallen.

Although gold prices rebounded and closed higher on Friday, expectations of interest rate cuts weakened again and gold prices lost momentum, plunging more than $80 in a week, the biggest weekly decline since early December.

The bulls fell sharply after increasing their positions, and the popularity of the gold market declined.

As gold prices rise and fall, sentiment in the gold market has also fallen sharply recently. According to the latest survey by Kitco News, the proportion of institutional analysts who are bearish on gold rose to 57 per cent this week, compared with 79 per cent of analysts the previous week, while the bullish proportion of retail investors fell to 46 per cent from 58 per cent last week.

High-frequency position data showed that CME gold open contracts fell sharply by 42025 to 498000 in the week ended May 24, falling in the first week after seven consecutive weeks of increase. It is worth noting that there has been a continuous reduction in gold open positions for three consecutive days from May 22 to May 24.

However, the performance of net long positions in futures is slightly different. Net long positions of COMEX gold speculators increased by 21030 to 193972 positions in the week ended May 21, the second consecutive week of increase, according to CFTC trader position data. This is the highest since mid-April 2020.

Investment demand for gold is still weak. Positions in the world's largest gold ETF--SPDR GOLD TRUST fell by 6.33 tonnes in the week ended May 24, to 832.21 tonnes.

Technically, gold broke through the $2400 mark twice in two months, but failed to hold it steady in the end, indicating that the bulls lacked stamina. At present, the resistance above the gold price is 2337-2350 US dollars / oz, and the key resistance is 2360-2372 US dollars / oz. If it breaks through this position strongly, the gold price may rise to 2400 US dollars again. But short-term gold prices still face downside risks, with the key support in the $2300-$2310 range, which increases the risk of a downward test of $2250-$2275 an ounce if it falls below that range.

Domestically, the current resistance of the Shanghai gold main contract is 559-563 yuan / g, and the key resistance is 567-572 yuan / g. The breakthrough is expected to rise. The lower support focuses on 542-547 yuan / g, and the break has the risk of testing 528-530 yuan / g.

The main contract support of Shanghai Bank focuses on the 7,780 - 7,830 yuan/kg area, and the key support is 7,550 - 7,650-yuan/kg. Breaking the position risks testing the 7,180 - 7,350 yuan/kg area. The short-term resistance is 8,100 - 8,200 yuan/kg, and the key resistance is 8,400 - 8,500 yuan/kg. If the pressure exceeds 8,800 - 9,000 yuan/kg in the future, look to the front line of 9,500 - 10,500 yuan/kg.

(Author: Li Yuefeng, researcher at Beijing Gold Economy Development Research Center)