Gold prices have fallen for several days, experts: lack of upward momentum, the future may fall to $2,100 / ounce

Times Finance

2024-05-27 12:32Posted on the official account of Guangdong Times Finance

Source of this article: Times Finance Author: Li Yiwen

On May 20, the expression of love, the price of gold hit a new high, and the price of COMEX gold futures reached 2454.2 US dollars / ounce (about 570.48 yuan / gram), setting a record high since the data began.

However, as the "520" faded away, gold began to fall on May 21, and gold prices fell for several days. On May 24, the price of COMEX gold futures fell to $2338.8 per ounce intraday, down nearly 4.7% from its high. The "AU99.99" gold product of the Shanghai Gold Exchange also fell from 573.80 yuan/gram of "520" to 552.6 yuan/gram, a decrease of about 3.6%.

Gold prices "dived" after 5.20. (Source: Picture Worm Creative)

In fact, there is often a price correction after each record break in the price of gold. Previously, on April 22, gold fell 2.73% in a single day after a round of small gains, the largest one-day decline in the past two years.

However, the current gold market seems to be different. The intractable risk of inflation in the United States has made the Fed's rhetoric more hawkish (strong), and the market's expectations for the Fed's interest rate cut continue to be delayed, and bets on interest rate hikes are rising. This has also led to a stronger dollar, gold under pressure, and a lot of "cash out" and "pocket-safe" mentality in the market.

Now, it seems that the gold market has reached a critical juncture. Is the current price drop another phased pullback in the past, or a historic turning point in gold prices?

Gold prices have sparked market concerns

The biggest impact on gold prices in this round is the Fed's increasingly "hawkish" rhetoric.

Although the current Fed Chairman Jerome Powell has been moderate and cautious in his rhetoric when talking about the expectation of "rate cuts". However, according to the minutes of the latest meeting released by the Federal Reserve in recent days, a group of Fed policymakers were generally disappointed with the recent inflation data and made it clear that if inflation continues, interest rates may remain at higher levels for longer. Some policymakers have even hinted at further rate hikes if needed.

Judging from the inflation data that the Federal Reserve is currently paying most attention to, the current "battle against inflation" in the United States is far from a success.

According to the U.S. Bureau of Labor Statistics, the U.S. CPI rose 3.4% year-on-year in April and 0.3% month-on-month, and after excluding volatile food and energy prices, the core CPI rose 3.6% year-on-year in April, down 0.2 percentage points from the previous value of 3.8%.

Although the data is generally in line with market expectations, it is still significantly higher than the Fed's 2% policy target. "There has been a 'lack of further progress' towards achieving the Fed's long-term inflation target of 2%," the minutes of the recent meeting clearly conveyed the Fed's displeasure with the current progress in fighting inflation.

In fact, if the Fed's target of 2% is taken, inflation in the United States has been high for more than three years, during which the US CPI data reached a maximum of 9.1%, and inflation hit a 40-year record in the United States. Since then, although the Fed's aggressive interest rate hikes have slowed down, the CPI data, which represents inflation, has still hovered around 3.5% for more than half a year.

Judging from the CPI data, the current "anti-inflation battle" in the United States is still difficult to say successful. (Source: Oriental Fortune)

The Federal Reserve is expected to raise interest rates, the dollar is under pressure, and the inflation situation is waved to the gold market.

Although the current round of gold prices has fluctuated since the gold bull market in 2018, the overall price is still soaring, and the highest price records of various gold products are even updated on a "daily" basis. Among them, the current COMEX gold price has increased by more than 110% compared with the low of 1167.1 US dollars / ounce in 2018, which is far more than other investment products.

The high price of gold has increased the cost of entering the market, and the constantly refreshing price records have also led people to think about the boundaries and support of the price of "non-interest-bearing assets".

According to the latest data from the U.S. Commodity Futures Trading Commission (CFTC), as of May 24, the world's largest gold ETF - SPDR Gold Trust held 832.21 tons, a decrease of 1.15 tons from the previous trading day, and a decrease of 46.33 tons, or 5.27%, from the high of 878.54 tons at the beginning of the year.

In fact, the market's concerns are not unfounded. Around 2010, gold rose sharply, but since the third quarter of 2012, the price of gold has been falling, causing many investors who entered the market at high points to lose a lot.

A correction in gold prices is inevitable

After refreshing the historical record again, is the recent decline in gold prices a phased pullback, or a historic turning point in this round of gold prices?

In this regard, Tan Yaling, president of the China Foreign Exchange Investment Research Institute, believes that the current correction of gold prices has become inevitable, and although the adjustment of gold prices has fluctuated, it is not over, and the future gold price may fall to 2,100 US dollars / ounce.

"Gold has risen without momentum," Tan Yaling told Times Finance, the previous fierce geopolitical factors have been digested by the gold market, in the short term, the economy between the world's major economies has recovered to a certain extent, competition has remained rational, there is no greater risk.

"In addition, US Treasuries are still considered a low-risk asset by the market and interest rates remain high. As a non-interest-bearing asset, investors will be more inclined to reduce their holdings of gold and increase their holdings of treasury bonds when the Fed's interest rate cut expectations are far away and interest rate hikes are still possible. Tan Yaling added.

In fact, although the current global economic situation has yet to be recovered, the world's major economies, especially the two super economies of China and the United States, have exceeded market expectations.

According to the latest World Trade Organization (WTO) Global Trade Outlook and Statistics report, global trade in goods will grow by 2.6% in 2024 and will continue this year's recovery momentum in 2025, with an expected growth of 3.3%. This compares to -4.6% in 2023.

Judging from this data, this round of gold price rise has the property of gold as a safe-haven, but when the economic development enters a flat stage, its safe-haven value will also decline accordingly.

Source: Picture Worm Creative

"There is a correction in gold prices in the short and medium term, but the long-term gold price is still positive." Song Jiangzhen, a senior researcher at the Guangdong Southern Gold Market Research Institute, told Times Finance that there is no risk of intensification of global geopolitics in the short term, but in the long run, there are contradictions that are difficult to reconcile between major regions. In addition, although the economies of major economies have outperformed expectations, there are still many internal problems that need to be resolved.

"Especially the exchange rate of a number of small countries in Asia is under great pressure." In Song Jiangzhen's view, the Fed's long-term high interest rates have brought great pressure to many countries with thin industries and weak finances, and the exchange rate between the currencies of some countries and the US dollar is close to the 2008 economic crisis.

Judging from the market data, the current performance of many currencies, especially those of some Asian countries in geopolitical hot spots, is not optimistic. Since April, the exchange rate of currencies such as the yen, the Thai baht, and the Indonesian rupiah has collectively plummeted under the heavy fall of the strong dollar. The yen even fell below the 160 mark against the dollar at one point, hitting a 34-year low. So far, many currencies have not been effectively recovered, among which the yen has remained at a high level of 157 against the US dollar.

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