After experiencing short-term adjustments, the gold sector became active again on May 16. In the Hong Kong stock market, Lingbao Gold and China Gold International rose by more than 6%, Zhaojin Mining by more than 3%, and Shandong Gold by more than 2%.

In the A-share market, Shengda Resources rose nearly 5%, Western Mining, Hunan Baiyin, and Xiaocheng Technology rose more than 2%, while Hunan Gold, Yintai Gold, and Sichuan Gold followed suit.

According to the news, data released by the US Department of Labor last night showed that the US CPI rose 0.3% month-on-month in April, in line with market expectations, lower than 0.4% in March; the year-on-year increase was 3.4%, in line with market expectations, and also lower than 3.5% in March. The combined “horror data” fell short of market expectations, boosting the possibility that the Federal Reserve would cut interest rates. Industry insiders pointed out that the current Fed's interest rate cuts and slowing down expectations may make the price of gold rise and difficult to fall.

US CPI helps gold rise step by step

On the evening of May 15, Beijing time, the US Bureau of Labor Statistics released the US Consumer Price Index Report for April. The report shows that after seasonal adjustments, the US CPI increased 0.3% month-on-month in April, down from 0.4% last month; without seasonal adjustments, the US CPI increased 3.4% year on year in April, down from 3.5% last month, which is in line with market expectations. Meanwhile, retail sales in April recorded 0%, lower than previous values and expectations, indicating a decline in inflation, which is conducive to the rise of gold. (click to see more)

A series of recently released economic data has also boosted expectations that the Federal Reserve will cut interest rates. According to the latest data from the CME “Federal Reserve Watch”, the probability that the Fed will keep interest rates unchanged in June is 96.9%, and the probability of cutting interest rates by 25 basis points is 3.1%; the probability of keeping interest rates unchanged by September is 31.2%. The probability of cutting interest rates by 25 basis points is 52.1%, and the probability of cutting interest rates by 50 basis points is 16.2%.

Analysts pointed out that the US CPI report opened the door for the Federal Reserve to cut interest rates again and led to a round of widespread dollar sell-off. Therefore, it is not surprising that the price of gold was sought after that.

Optimistic about the medium- to long-term allocation value of gold

After gold soared and hit a new high in mid-April, it has been in a state of fluctuation recently. Since this year, the price of gold has risen by about 14%, due to central bank purchases, geopolitical risks, and support from Chinese consumer demand.

According to the “Global Gold Demand Trends” report for the first quarter of 2024 released by the World Gold Council, total global gold demand (including OTC transactions) increased 3% year-on-year to 1,238 tons in the first quarter, which also became its brightest record for the first quarter since 2016.

Meanwhile, steady investment demand from the OTC market, continued gold purchases from central banks around the world, and rising demand from Asian buyers jointly pushed the average price of gold to a record high of 2,070 US dollars/ounce in the first quarter, up 10% year on year and 5% month on month.

Central banks around the world continued to maintain a rapid gold buying trend. The world's official gold reserves increased by 290 tons in the first quarter. This is also the highest demand for gold purchases by central banks in the first quarter since this data was calculated, up 1% from the previous year.Central banks around the world continue to buy large amounts of gold, highlighting the importance of gold in international reserve portfolios.

Looking ahead, according to gold's recent performance, the return on gold in 2024 may be higher than what the World Gold Council expected at the beginning of the year. If the price of gold stabilizes over the next few months, some price-sensitive buyers may re-enter the market, and investors will continue to regard gold as a good safe-haven asset while waiting for interest rate cuts and clear election results.

Huaan Fund also said that it has a neutral and optimistic attitude about the investment value of gold. In the short term, gold experienced an early correction, and trading risks were reduced. From a fundamental perspective, the overall economic indicators of the US economy are weakening. The May interest rate meeting was biased, causing interest rates on US bonds to fall from a high level, which helps the gold pricing logic. Looking ahead to the whole year, CME data shows that the Federal Reserve is expected to start a cycle of interest rate cuts in September, and the medium to long term is optimistic about the allocation value of gold in the context of “de-dollarization” by central banks.