Last week (June 8-12) saw heightened volatility in the gold market, with the direction of US-Iran tensions influencing market risk appetite. Gold's year-to-date returns turning negative triggered some negative feedback.
Market Analysis
The international gold market accelerated its decline last week, setting new lows for the current adjustment cycle and record pullbacks. Mid-week US CPI data met market expectations, with core CPI coming in below forecasts. Overall consumer spending data was acceptable, but contributions from discretionary spending declined. With inflationary pressures easing at the margin, the likelihood of the Federal Reserve's June meeting signaling further tightening to the market is not high.
The primary factor exerting negative pressure on gold prices last week remained the trajectory of US-Iran negotiations. Former President Trump launched new military strikes against Iran and threatened further attacks on the Kharg Island, but later stated that both sides were close to an agreement and called off the strike plans, leading to a recovery in market risk appetite. International spot gold experienced sharp fluctuations amid this back-and-forth, briefly approaching the $4,000 psychological level. According to a report from Iran's Tasnim News Agency in the early hours of the 15th, the US and Iran are set to sign a memorandum of understanding in Switzerland on the 19th to end the war and reopen the Strait of Hormuz. In previous analyses, we have noted that the opening or closing of the strait could impact gold from both inflationary and liquidity perspectives. Given the current direction of events, gold may be poised for a potential rebound window following its recent oversold conditions.
With the Federal Reserve's interest rate meeting imminent this week, the debut of Kevin Warsh is highly anticipated. His statements regarding the future interest rate path and the balance sheet will directly influence overall market liquidity.
Key Market Developments Last Week
The US and Iran are set to sign a preliminary memorandum of understanding. Officials from both countries stated last Sunday that they have reached a peace framework agreement to end the war, lift US sanctions on Iran, and reopen the Strait of Hormuz. Pakistani Prime Minister Shehbaz Sharif posted on social media that the agreement will be formally signed in Switzerland this Friday, June 19th.
US inflation data for May remained generally stable. The US May CPI rose 4.2% year-on-year, with a month-on-month increase of 0.5%. Core CPI rose 2.9% year-on-year, meeting market expectations, while the month-on-month core CPI growth of 0.2% was slightly below forecasts.
Risk Advisory
Recent gold price movements have been volatile. Investing in gold funds requires a full understanding of the risks involved, and decisions should be made prudently based on individual risk tolerance. It is also advisable to continuously monitor global macroeconomic trends, central bank gold purchases, and relevant policy developments.
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