The gold market continued its weak and volatile performance last week (May 18-22), influenced by developments in US-Iran negotiations affecting market risk sentiment. Kevin Warsh formally took office as Federal Reserve Chairman, announcing a commitment to combating inflation. A more hawkish policy stance is becoming increasingly evident within the Fed, putting pressure on gold's performance.
Regarding market views, the international gold market maintained a generally weak and fluctuating trend last week. Kevin Warsh was officially sworn in as Fed Chairman at the White House, signaling his resolve to fight inflation and reform the Fed's monetary policy framework. He has consistently emphasized that quantitative tightening (QT), which aims to reduce the money supply, functions as a quasi-fiscal tool that will decrease liquidity in the financial system, marking the end of the era of cheap money. Furthermore, Warsh plans to eliminate forward guidance, making it more difficult for markets to anticipate monetary policy moves and likely leading to increased market volatility. Finally, Warsh also expressed a firm commitment to combating inflation, suggesting that with oil prices remaining high in the short term, the Fed will pause interest rate cuts. During the week, Fed Governor Christopher Waller stated that, given rising inflation risks, the Fed should no longer consider further rate cuts as the default plan, a clear shift from his stance in January. Market-based inflation expectations for the 1 to 5-year horizon have risen to varying degrees, indicating that consumer concerns about future price pressures are still mounting and providing a basis for the market to reassess the Fed's policy path.
However, positive news emerged over the weekend regarding US-Iran talks, with the two sides potentially reaching a memorandum of understanding to extend the ceasefire and reopen the Strait of Hormuz. According to various reports, differences remain between the US and Iran over abandoning high-enriched uranium stockpiles, with the current focus on the ceasefire and reopening the strait. For gold, the aforementioned pressures largely stem from expectations of liquidity tightening amid rising inflation. If the Strait of Hormuz can be reopened, helping to stabilize inflation again, it could aid the precious metals market in gradually rebuilding resilience.
In terms of last week's market dynamics, hawkish expectations within the Fed are becoming more pronounced. Fed Governor Christopher Waller stated on the 22nd that, given growing inflation risks, the Fed simply should no longer consider further interest rate cuts as the default plan. This contrasts with his support for rate cuts as recently as January this year.
US market inflation expectations are trending upward. The final reading of the University of Michigan Consumer Sentiment Index fell from a previous 48.2 to 44.8 in May, with the Consumer Expectations Index also dropping from 48.5 to 44.1. One-year consumer inflation expectations rose from 4.5% to 4.8%, while five-year inflation expectations increased from 3.4% to 3.9%. This indicates that consumer concerns about future price pressures are still heating up and provides a basis for the market to reassess the Fed's policy path.
The US and Iran are close to finalizing a memorandum of understanding, with the Strait of Hormuz expected to reopen. US President Donald Trump stated on May 23 local time that an agreement with Iran, including the reopening of the Strait of Hormuz, has been largely negotiated and is awaiting finalization by both sides and relevant countries. Iranian Foreign Ministry spokesperson Nasser Kanaani also stated on the same day that Iran and the US are working to finalize the memorandum. Differences remain between the two sides over abandoning high-enriched uranium stockpiles, with the current focus on the ceasefire and reopening the strait.
(Risk Warning: Gold has experienced significant volatility recently. Investing in gold funds requires a full understanding of the risks and prudent decision-making based on one's own risk tolerance. It is also advisable to continuously monitor global macroeconomic trends, central bank gold purchases, and related policy developments.)
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