Last week (July 13-17), the gold market continued to display weak, range-bound performance. The released US June CPI and PPI data were significantly below expectations, yet this failed to trigger a substantial rebound in gold prices, indicating a weakening market sentiment.
Market Analysis
Throughout the week, the gold market exhibited weak fluctuations around the $4000 per ounce level. The comprehensive failure of the US-Iran ceasefire agreement, renewed blockades in the Strait of Hormuz, and attacks on critical Iranian infrastructure such as railway hubs and desalination plants have escalated conflict risks. The liquidity dynamics that suppressed gold in March are once again exerting pressure on the market. The US June CPI and PPI data, both substantially weaker than forecasts, have tempered expectations for Federal Reserve tightening. Despite this, gold struggled to mount an effective rebound, with bearish sentiment remaining pronounced.
Persistent transportation issues stemming from the strait blockade remain unresolved. Consequently, despite the short-term weakness in inflation data, the market remains hesitant to conclude that inflation has been effectively tamed, especially as oil prices have resumed their upward trajectory. Correspondingly, accommodative policies from major economies face challenges in effective implementation. As an interest-rate-sensitive asset, gold continues to be constrained by this logic. In the absence of fundamental drivers, the likelihood of maintaining weak, range-bound trading remains high.
Weekly Market Developments
US-Iran tensions escalated from skirmishes to a full-scale blockade and standoff within the week. On July 12, Iran announced an indefinite closure of the Strait of Hormuz. US forces launched a third round of strikes, destroying approximately 140 targets, with Iran retaliating with missile strikes on US bases in five countries. From July 13 to 14, strait traffic declined, and oil prices surged. Between July 15 and 16, the US reinstated a maritime blockade and conducted consecutive nightly airstrikes. Iran warned of an oil embargo, though the White House stated dialogue was ongoing. On July 17, Iran issued a warning that attacks on its infrastructure could sever regional energy supply chains. The International Energy Agency (IEA) expressed concerns over global energy security on the same day. At this point, US-Iran relations have fully deteriorated from technical dialogue to military confrontation and a struggle for control over the strait.
US June CPI data came in significantly weaker than expected. Year-on-year CPI for June was 3.5%, compared to a market expectation of 3.8%. Core CPI for June was 2.6% year-on-year, versus an expected 2.8%. Month-on-month, CPI fell 0.4%, while core CPI was unchanged at 0%. Structurally, energy prices fell 5.7% month-on-month, driving the overall CPI cooling. The drop in oil prices also led to slower growth in clothing and airfare prices. Within core inflation, core goods were flat month-on-month at -0.1%, while core services increased by only 0%, down from a previous 0.3%.
US June retail sales increased 0.2% month-on-month, meeting market expectations. Gas station sales fell to -5.3% month-on-month, corresponding with the drop in oil prices. Retail sales for miscellaneous stores, clothing, and furniture also declined. Meanwhile, sales of motor vehicles and electronics rose to 1.9% and 0.8% month-on-month, respectively. Overall, US consumer spending remains resilient.
Risk Advisory
Gold has experienced significant volatility recently. Investing in gold funds requires a full understanding of the associated risks and prudent decision-making aligned with one's own risk tolerance. It is advisable to continuously monitor global macroeconomic trends, central bank gold purchases, and relevant policy developments.
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