International spot gold continued its weak correction on Thursday, May 14, falling nearly 1% to mark a third consecutive day of losses. During the Asian trading session on Friday, May 15, the price of gold extended its decline, breaking below the $4600 per ounce level. Overall, under the dual pressure of a strong US dollar and rising US Treasury yields, gold prices are exhibiting a weak and volatile pattern.
The recent weakness in gold is primarily driven by the combined pressure from the US dollar and US Treasury yields. On Thursday, the US dollar index rose by 0.3%, reaching a two-week high, which directly increased the holding cost of dollar-denominated gold and created significant headwinds for non-US market funds. Simultaneously, the yield on the 10-year US Treasury note hit an 11-month high. In this high-yield environment, the appeal of non-yielding assets like gold continues to diminish, leading to a notable diversion of capital.
Shifting expectations regarding the Federal Reserve's monetary policy have further amplified the downward pressure on gold prices. Driven by rising energy prices due to conflicts in the Middle East, US CPI and PPI data for April exceeded expectations, indicating persistent inflationary pressures. Market expectations for a Fed rate cut have largely dissipated. According to the CME FedWatch Tool, the probability of the Fed maintaining the current interest rate in December stands at 53.5%, while the probability of at least a 25-basis-point hike has risen to 44.7%. The cumulative probability of a rate cut is only 1.7%. New York Fed President John Williams reinforced this view, stating that current monetary policy is in a reasonable range with no immediate need for adjustment and that long-term inflation expectations remain stable. This has strengthened market pricing for higher interest rates to persist longer, increasing the opportunity cost of holding gold and continuously capping its upside potential.
Furthermore, the resilience of the US economy is further suppressing safe-haven demand for gold. US retail sales grew by 0.5% in April, meeting expectations, and initial jobless claims saw a slight increase while the overall job market remains stable. This economic resilience supports the performance of the US dollar and risk assets. US technology stocks led gains, with the S&P 500 and Nasdaq indices reaching new closing highs, reflecting a recovery in risk appetite that is diverting funds away from gold.
In summary, the gold market is currently in a complex environment with mixed factors. A strong US dollar and heightened expectations of Fed rate hikes constitute downward pressure, while ongoing geopolitical uncertainties provide some safe-haven support. It is expected that gold prices will maintain a weak and range-bound pattern in the short term. In the medium to long term, however, global geopolitical and economic uncertainties are likely to preserve structural allocation opportunities for gold.
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