International spot gold prices have recently struggled to sustain a rebound, primarily pressured by high global oil prices and persistent US inflationary pressures. The sustained elevation in crude oil prices has heightened global inflation expectations, potentially prolonging the Federal Reserve's maintenance of a high-interest-rate environment. Data from the US swap futures market indicates limited room for rate cuts within the year, with a not insignificant probability of a rate hike emerging by the end of next year. This reflects market concerns over economic resilience and stubborn inflation, naturally diminishing the appeal of holding non-yielding gold. Concurrently, capital shows a greater inclination to flow into robust-performing risk assets like equities, further hindering the rise in international gold prices. While the long-term fundamental support for gold remains solid—such as the US government's increasing debt potentially undermining the dollar's foundation over the long term, lingering geopolitical risks, sustained gold purchases by global central banks, and the eventual gradual rate cuts by the Fed—some of these factors have shifted from urgent necessities to delayed realizations since the start of the year. Alternatively, the elevated international gold price may have triggered profit-taking and position adjustments. Therefore, it is currently inadvisable to rely solely on these long-term factors for a bullish gold outlook; close attention must be paid to short- to medium-term factors that could prompt a correction in international gold prices. Beyond the ongoing impact of high oil prices and potential gold sales by some central banks to meet fiscal needs, the potential for renewed dollar strength is a key factor that cannot be overlooked in influencing international gold price trends. The recent political crisis in the UK, involving pressure for Prime Minister Keir Starmer to step down, could trigger a new round of sterling crisis, subsequently dragging on the euro's performance. This would indirectly support a dollar rebound, putting downward pressure on international gold prices. Prime Minister Keir Starmer faces significant pressure within his party following severe losses in local elections, with several MPs calling for his resignation or the setting of a departure timetable, indicating a brewing political crisis. Historically in the UK, similar political instability events have often led to sharp declines in the pound sterling. Examples include the forced exit from the European Exchange Rate Mechanism and the pound's sharp devaluation on "Black Wednesday" in 1992; the steep fall after the Brexit referendum in 2016; and the plunge to near historic lows around 1.03 USD in 2022 triggered by market panic over the Liz Truss government's mini-budget, which led to the Prime Minister's swift resignation. The common thread in these events is that political turmoil weakens investor confidence in the UK's economic prospects, leading to capital outflows and intense pressure on the currency. One of the core policies of the Starmer government is to repair relations with the European Union, aiming to enhance trade and economic cooperation. If the political crisis impedes policy implementation or even worsens UK-EU relations, not only would the pound be severely impacted, but the euro would also struggle to remain unscathed. Given the close trade ties between the UK and the EU, overall market sentiment in Europe is easily interconnected. Both the pound and the euro hold significant weight in the global foreign exchange market and the US Dollar Index (with the euro comprising about 57% of the index and the pound also having a notable share). Simultaneous weakness in both would strongly propel a rebound in the Dollar Index. The impact of a stronger dollar on international gold prices is direct and pronounced, as gold is priced in dollars. Dollar appreciation increases the cost of purchasing gold for non-dollar zone investors, reducing demand and thereby weighing on international gold prices. Past similar UK political events have repeatedly coincided with dollar rebounds and adjustments in international gold prices. Looking ahead, if a change in UK leadership triggers an early general election, uncertainty would increase further, potentially amplifying market volatility. Investors need to monitor variables such as rising UK government bond yields (reflecting fiscal risks), potential political ripple effects in Europe, as well as oil price movements and central bank actions. In the short term, international gold prices may face downward adjustment pressure. In summary, while long-term support for international gold prices remains, caution is warranted regarding short- to medium-term trends amid the current interplay of high interest rate expectations, potential dollar rebound, and UK political uncertainty.
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