Ahead of the European market on Thursday, rekindled concerns about high interest rates and weakening safe-haven demand weighed on gold prices. Gold futures fell further from record highs and fell below the $2,360 mark for the first time since May 15; copper prices also fell sharply from record highs.
As the minutes of the Federal Reserve meeting showed concerns about sticky inflation, market fears that the federal funds rate could rise intensified.
The minutes of the Federal Reserve's April meeting show that policymakers are increasingly concerned about sticky inflation, and some policymakers are also open to further interest rate hikes to reduce inflation, although this seems unlikely to happen.
In the face of difficult inflation, the Federal Reserve is more likely to maintain high interest rates for a longer period of time. Several policymakers' speeches this week showed that the Fed has limited confidence that inflation will reach the 2% target in the short term.
Long-term high interest rates bode bad for gold and other precious metals, as it increases the opportunity cost of investing in these precious metals.
Tim Waterer, chief market analyst at KCM Trade, said, “The minutes of the Federal Reserve meeting reminded investors that cutting interest rates is far from being a policy to be considered at present, and the price of gold has been hit. If the dollar continues to rise, the price of gold is likely to fall back to the support level around $2,355.”
Furthermore, the geopolitical tension in the Middle East region did not deteriorate significantly after the death of Iran's president, which also weakened the safe-haven demand for gold in the market.
However, Waterer added that the medium- to long-term outlook for gold is still constructive, but this largely depends on the Fed's next move to cut interest rates rather than raise interest rates. The central bank's money purchase actions have also remained unchanged.
Traders' bets show that the market is increasingly skeptical of the view that the Fed will cut interest rates more than once in 2024. Investors currently expect the possibility that the Fed will cut interest rates by November is 73%.
Next, gold traders will pay close attention to the upcoming May US manufacturing and service PMI data. Weak data may trigger market hopes for the Fed to cut interest rates and support gold.
In addition to this, the Chicago Federal Reserve's National Activity Index, initial jobless claims, new home sales data, and the Federal Reserve's Bostic speech will also be the focus of market attention.
Everett Millman, chief market analyst at Gainesville Coins, said:
No matter when, as long as gold rises rapidly over such a long period of time, there will naturally be some profit settlements. Gold prices are expected to consolidate and retest the $2,300 level. Delays in interest rate cuts, unmitigated concerns about the recession, and sell-offs by Western investors have also dragged down the price of gold.
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