Setback and recovery

Over the past days, we have been strong movements on the financial markets. Gold investors are unlikely to have fond memories of last Friday in particular.

Chinese central bank suspends gold purchases

On Friday morning, it looked as though gold was preparing to break through the 2,400 US$ per ounce barrier, but by the end of the day the precious metal had lost 3.5 per cent of its value. This was partly due to the fact that the Chinese central bank had not made any official gold purchases for its reserves in May for the first time in 18 months, which came as a shock to investors.

The news itself should not be too relevant, as China’s monetary authorities are known to be sensitive to prices, and gold had soared to record highs in May. It seems quite conceivable that they could again increase their purchasing in the event of price setbacks for the precious metal.

US inflation slows

In the afternoon, US labour market data turned out better than expected, and average hourly wages were above expectations. Potential interest rate cuts by the US Federal Reserve were therefore priced out. Yields on government bonds and the US dollar rose.

The week saw two further highlights yesterday: US consumer price data and the Fed meeting. Inflation data was below expectations, with the monthly rate of change in core inflation, which excludes energy and food prices, at 0.16 per cent, the lowest it has been since August 2021.

Fed reduces 2024 rate cut expectation to one  

As expected by all market participants, the US Federal Reserve left interest rates unchanged. However, after the central bankers had still expected three interest rate cuts of 25 basis points each by the end of the year in March, the majority now only expects one. 11 of 19 members of the council expect at most one interest rate cut this year, and four of them none (in March it was still two). The other eight expect two interest rate cuts. On the other hand, the FOMC members are now projecting an average of four instead of three key rate cuts for 2025.

The Fed’s preferred measure of inflation, the core rate of personal consumption expenditure (PCE), is expected to be at 2.8 per cent in 2024, according to the new estimate, after 2.6 per cent was still expected in March. The prospect of a later-than-expected interest rate hike by the Fed seemed to weigh on gold prices yesterday evening.

Gold prices slightly below previous week’s levels

On Thursday last week, our favourite yellow metal traded at 2,368 US$ per ounce. Overnight from Thursday to Friday, the price initially rose to around 2,388, but Friday evening, it had declined by US$100 to 2,287. On Monday, gold prices regained the 2,300 mark and rose to 2,341 yesterday afternoon following the publication of US inflation data. This morning, however, gold started trading in Europe at a slightly lower level of 2,311 US$ per ounce at around 7:00.

Xetra-Gold was down from 69.90 € per gram last Thursday morning to 68.50 at the start of trading on Monday – the same low as last week. It also recovered, to 69.50 yesterday afternoon, following the publication of US inflation data. This morning, Xetra-Gold was expected to start the day at a slightly more subdued 68.80 € per gram, due to the stronger euro and the slightly lower gold prices yesterday evening.

The markets will initially be busy evaluating and pricing in the outcome of the Fed meeting. This afternoon, they will turn their attention to the US producer price index. In Europe, the markets are currently contemplating the question of whether the prospects for the euro or European stocks and bonds will change after the snap elections of the French National Assembly. However, European traders will probably also be keeping a close eye on the matches held in local football stadiums in the coming weeks...

I wish all our readers a relaxing weekend.