Gold News

'Higher for Longer' Seen Curbing Gold Prices as Fed, ECB, BoE Vow to Fight Inflation

The GOLD PRICE bounced almost $10 per ounce from a new 3.5-month low in London trade Wednesday, recovering only half of this week's drop so far as the heads of the world's top 3 reserve-currency central banks said they will press ahead with tight monetary policy to try beating inflation.
"The progress on headline inflation coming down is certainly welcome," US Federal Reserve chairman Jerome Powell said at today's closing panel session of the 3-day ECB central banking forum in Sintra, Portugal.
But while core inflation will get back to the Fed's 2% target in 2025, "We're a long way" from thinking about cutting rates he said.
"[We] must persist with high rates to ward off wage-price spiral," repeated European Central Bank president Christine Lagarde, as summarized by the Financial Times and also refuting that a deep recession now looks likely.
"We will [also] do what is necessary to get inflation to target," claimed UK Bank of England chief Andrew Bailey, now facing the highest inflation among all major developed economies.
Heading towards end-June with a 3.5% loss from the end of March, the price of bullion today marked the 10th anniversary of gold's worst-ever calendar quarter by edging back up to $1912 per Troy ounce.
Looking ahead, gold-market "support from still strong demand from central banks, retail investors, as well as institutions with a longer term investment horizon, should limit the downside for prices," says the latest weekly note from specialist analysts Metals Focus.
"[But] we believe that the adjustment to a reality of no cuts for longer will weigh on gold...[something] already evident in the past two weeks as financial markets have completely ruled out rate cuts in 2023.
Projecting a H2 low of $1730, Metals Focus still sees the gold price making a full-year 2023 annual average of $1890 – "another record high" as it notes in its new Gold Focus 2023 report.
Chart of gold price and 2023 forecasts from Metals Focus' new Gold Focus 2023
Global stock markets rallied Wednesday to a 1-week high as Western government bond prices also rose, edging longer-term borrowing costs lower.
So-called crypto currency Bitcoin meantime slipped 1.3 from yesterday's 13-month high, almost doubling from November's lows in US Dollar terms as speculation mounts that giant asset-management firm BlackRock will win approval from US regulators the SEC to launch a Bitcoin ETF despite the wider crypto sector's ongoing criminal trials, frauds and scandal.
Even so, that left BTC over 45% below the record highs of late-2021.
"Investors don’t seem eager to buy gold at current levels," says a note from Dutch bank ABN Amro's senior economist Georgette Boele, "probably because prices are relatively close to all time high.
"Moreover, the market has priced out the possibility of the start of the easing cycle by the Fed this year."
Almost 85% of betting on July's Fed interest-rate decision now sees the US central bank raising another quarter-point to a ceiling of 5.5% per annum.
But that is where rates will then stay according to the balance of trader positioning tracked by derivatives exchange the CME's FedWatch tool, with 3-in-4 bets on December 2023's Fed meeting now predicting no change or even a cut from that 5.5% peak.
"We [now] expect the last rate hike of 25bp at the Fed’s July meeting," says ABN's gold price note, and "we still forecast aggressive rate cuts in 2024" due to an impending US recession, giving gold scope to repeat the bank's end-December forecast of $2000 per ounce again next year.
After Tuesday's data releases put US durable goods orders, new home sales and house prices ahead of analysts' consensus forecasts, new figures today said bank lending across the 19-nation Euro currency zone continued to weaken in May, slowing to 2.1% annual growth.
Separate data yesterday said No.1 gold consumer nation China's net bullion imports via Hong Kong slipped back in May after rallying in April, with weakening data from the world's 2nd largest economy seen as linked to softer household spending growth.
While the People's Bank added to China's state reserves of gold bullion for the 7th month running, wholesale demand among private players was muted according to analysis by the mining industry's World Gold Council, and May's occasional discount in Shanghai prices against London quotes – a disincentive to new imports out of the world's central bullion trading and storage hub – have been repeated in June as Yuan gold prices held near record highs.
Shanghai's benchmark gold price today edged down to the lowest in 3 weeks at ¥446 per gram, trimming the premium over London quotes by $2 per ounce from Tuesday's return to typical levels around $8.50.
"Given the abundance of systemic risks, a turbulent geopolitical backdrop and richly priced equity market," says Metals Focus, "the case for holding gold as a portfolio diversifier remains strong." 
Euro gold prices today rallied 0.7% from a new 3.5-month low of €1740, while the UK gold price in Pounds per ounce rebounded to £1512 after making its first dip through £1500 since the end of February.
Silver meantime tracked the gold price in reversing Wednesday's earlier drop, trading back up 20 cents from today's fresh 3.5-month low of $22.60 per Troy ounce.

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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