Gold markets entered a brief holding pattern on June 9th following an agreement between Israel and Iran to pause mutual attacks, temporarily easing geopolitical tensions. During Tuesday's Asian trading session, the price of gold hovered around $4,320 per ounce, largely unchanged from the previous day's close. Market sentiment remained cautious, with both bulls and bears awaiting the next key catalyst: the US Consumer Price Index (CPI) data for May.
Previously, US President Trump publicly called for Iran and Israel to "stop the fire immediately." Subsequently, both sides indicated on Monday a pause in attacks against each other. Recalling the initial phase of the conflict, gold prices experienced a significant decline and currently remain approximately 18% below pre-conflict levels. While the ceasefire news did not trigger a new wave of selling, it significantly suppressed gold's rebound momentum, leaving it temporarily without a driving force for an upward breakout.
The US non-farm payrolls report released last Friday far exceeded expectations, showing an addition of 172,000 jobs. Data for April was also revised upward to 179,000. This robust labor market data completely shifted market expectations regarding the Federal Reserve's interest rate path. The market's probability assessment for another Fed rate hike this year has surged significantly, an expectation that has directly erased all of gold's gains since the beginning of the year.
Gold prices experienced a slight decline in May, marking the third consecutive monthly drop after hitting a record high at the end of January. Persistent inflation concerns and expectations for prolonged high interest rates stemming from the Middle East conflict have dampened the appeal of the non-yielding asset. However, central bank gold purchases globally remain a key support for the price. The latest data shows that the People's Bank of China continued to increase its gold reserves in May.
According to data released on Sunday, the People's Bank of China added 320,000 ounces to its gold reserves last month. This increase marks the 19th consecutive month of growth in the central bank's gold holdings, representing the longest accumulation streak since the PBOC began reporting reserve data more frequently in 2015. Goldman Sachs stated last month that it expects central bank gold buying to intensify as geopolitical developments may further drive reserve diversification.
In light of the increased possibility of a Federal Reserve rate hike this year, Citigroup has lowered its three-month gold price target from $4,300 to $4,000 per ounce. Analysts, including Kenny Hu, noted in a report: "We remain bullish on gold in the long term, but we believe that for investors without wide tolerance ranges and long-term investment plans, investing in gold in the short term is extremely risky." Citigroup maintains its 6 to 12-month gold price target at $5,000 per ounce.
Analysts point out that the ceasefire news has alleviated market panic, suppressing safe-haven demand for gold. However, inflation worries and high US Treasury yields are providing underlying support, causing the gold price to temporarily consolidate within a range. Tomorrow's US May CPI data could be the key to breaking this deadlock. The market expects the year-on-year CPI rate to accelerate to above 4%, reaching 4.2%. If the data meets or exceeds expectations, with core CPI remaining elevated, it would further cement the reality of stubborn inflation. Market expectations for a Fed rate hike this year would rapidly intensify, boosting the US dollar and Treasury yields, potentially subjecting gold to a new round of selling pressure.
If the US headline CPI year-on-year growth falls below 4% and the month-on-month increase in core CPI is moderate, it would weaken the urgency for the Fed to hike rates. Market concerns over interest rates would cool somewhat, providing a breathing space for gold bulls and potentially allowing the gold price to gain rebound momentum. Overall, the current subdued price action in gold does not signal the start of a new trend but rather a typical consolidation pattern ahead of major data releases. Gold is currently in a fragile balance between "receding geopolitical risk" and "resurgent monetary tightening." Ahead of tomorrow's CPI data release, the market is likely to continue its watchful, consolidative stance.
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