During the Asian trading session on Tuesday, gold continued its weak performance, with the spot price remaining below the 200-day moving average, indicating a bearish short-term structure. The primary driver is the significantly better-than-expected U.S. non-farm payrolls data for May, which added 172,000 jobs, completely overturning the previous dominant "rate cut narrative." The market is now pricing in a "higher for longer" interest rate scenario, with the probability of a rate hike by October surging to nearly 50%. Rising nominal and real interest rates increase the opportunity cost of holding non-yielding gold, triggering long position reductions and passive selling. The recent rebound appears more as a correction than a reversal; a sustained break above the 200-day moving average is needed to repair the market narrative.
Key Insights from Zhishu Capital
Nitesh Shah, Head of Commodities and Macro Research at Zhishu Capital, pointed out that the current sell-off in gold is a classic case of "overreaction." The short-term pressure from rate hike expectations is merely market noise, while the widely underestimated risk of inflation is the core theme that will dominate medium to long-term price movements. He emphasized that the fate of gold prices is not determined by whether the Federal Reserve raises rates, but by the direction of real interest rates (nominal rates minus inflation). Even if the Fed maintains the current nominal rates, as long as inflation continues to climb, real interest rates will be continuously eroded or even turn negative. This would significantly reduce the opportunity cost of holding non-yielding gold, attracting massive capital inflows.
Shah believes the market is severely underestimating the "stickiness" of inflation. Global crude oil inventories are depleting rapidly, making oil prices extremely sensitive to geopolitical conflicts, and energy price increases will transmit throughout the industrial chain. Although advancements in AI technology may help contain service sector costs, inflationary pressures on the goods side are difficult to dissipate. This will force the Fed to refrain from cutting rates for an extended period; otherwise, it would completely undermine its policy credibility.
Beyond the inflation thesis, Shah listed a "triple safety net" supporting gold. First is the risk of economic recession; a slowdown in U.S. economic growth would activate gold's safe-haven attributes. Second is the concern over a debt crisis; U.S. Treasury interest payments are approaching defense spending levels, and market panic over fiscal sustainability provides underlying support for gold prices. Third is the Fed's policy dilemma; although the new Chair, Warsh, intends to shrink the balance sheet, facing economic downturn and fiscal pressures, the Fed will most likely be forced to return to an easing stance.
Overall, Shah judges this round of gold price correction as a mere "false breakdown." With the combined forces of runaway inflation, declining real interest rates, recession risks, and debt crisis concerns, gold is currently in a value trough. If future inflation persistently exceeds expectations, the market will once again chase hard currency assets. Gold has the full potential to recover the nearly $1,000 decline from earlier this year within the next year, initiating a new round of strong upward momentum.
Latest Market Analysis
Gold exhibited a pattern of "decline in Asia, rebound in Europe, and a surge followed by a retreat in the U.S. session" yesterday. The trading strategy was consistently bearish on rebounds, with precise timing: an early short position at 4350 successfully hit the profit target at 4330. Subsequently, a second short entry at 4320 captured the 4300 target. Although a late-session short at 4315 was stopped out, a new short position was promptly re-entered at the higher level of 4335 and closed for profit at 4320. Overall, the day yielded substantial profits, and even a short position held from last week at 4340 was successfully closed.
The daily chart shows a small doji candlestick. Although the moving average system remains in a bearish arrangement, the price has deviated significantly from the averages, suggesting a short-term need for consolidation and repair through time. Therefore, avoid blindly chasing shorts today; patiently wait for a rebound to enter.
The 4-hour chart shows signs of a potential bottoming consolidation, with gold price oscillating around a convergence of moving averages. Given the decline in the early morning hours, any morning rebound presents a selling opportunity.
The overnight decline starting point at 4347 is the boundary for extreme weakness, while the last rebound high at 4353 serves as the trend defense level.
A short position can be considered directly at the current price around 4337, with a stop-loss above 4357, targeting 4315-4300.
Focus on the strength of the European session. If prices break above 4353 during the European session, expect a pattern of surge followed by a retreat. If the European session shows weakness, continue selling on any rebound before the U.S. session.
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