The interest rate cut by the central bank and the purchase of gold have a significant impact on the gold price.

Last Friday, the unexpectedly strong employment data released by the United States suppressed market expectations of interest rate cuts, and the news of the Chinese central bank suspending gold purchases was added.

As a result, gold fell 3.7%, the biggest drop since August 2021.

China's central bank hits the "pause" button.

Last month, the People's Bank of China did not buy gold, ending the trend of increasing gold holdings for 18 consecutive months.

Since November 2022, the People's Bank of China has been increasing its gold reserves, but the amount of purchases has declined in recent months.

In April, the People's Bank of China only purchased 60,000 ounces of gold, which was lower than 160,000 ounces in March and 390,000 ounces in February, and there was no increase in May.

At the same time, as geopolitical tensions escalated, central banks around the world began buying gold.

Ole Hansen, head of commodity strategy at Saxo Bank, said: "The strong US employment report turned around the excitement of interest rate cuts last week. This report dispelled people's hopes of earlier interest rate cuts, with strong wage growth and employment requiring high interest rates to cool down."

"My initial idea was that China was the main driving force behind the rise in gold prices over the past year, but the rate of buying gold has not stopped yet," he pointed out.

He believes that the suspension of purchases indicates that the Chinese central bank is hesitant about the prospect of paying record high prices. Previously, the price of gold had soared to a record high of $2,454.2 per ounce.

This week, the Federal Reserve's June policy meeting will be held. Currently, the market expects the Fed to continue to keep interest rates unchanged, but more importantly, the Fed's statement on future interest rate paths.

The bet on a Fed interest rate cut will bring about violent fluctuations in the capital market, and gold will also usher in major changes this week.

Gold production is becoming increasingly difficult.

On the other hand, the World Gold Council said that as gold mines become harder to find, the gold mining industry is struggling to maintain production growth.

John Reade, chief market strategist at the World Gold Council, said: "Gold mine production in the first quarter of this year hit a historic high, up 4% year-on-year. But I think that from a broader perspective, gold mine production actually reached a stable level around 2016-2018 and has not increased since then."

According to the data of the International Trade Association, compared with a year ago, global gold mine production in 2023 only increased by 0.5%, an increase of 1.35% compared with the same period last year in 2022, and 2.7% in 2021. For the first time in ten years, global gold production in 2020 decreased by 1% year-on-year.

"The most shocking story, in my opinion, is that after the 10-year period of rapid growth around 2008, the mining industry is struggling to achieve sustained production growth," Reade said.

He analyzed that as many potential areas have been explored, it is becoming increasingly difficult to find new gold mines globally.

The World Gold Council stated that large-scale gold mining requires a lot of funding, and a lot of exploration and development is required, which typically takes 10-20 years to produce. Even in the exploration process, the chance of developing a gold mine is low, and only about 10% of gold mines globally contain enough metal to ensure mining.

So far, about 187,000 tons of gold have been mined globally, with most of it coming from China, South Africa, and Australia. According to the United States Geological Survey, the estimated gold reserves that can be mined are about 57,000 tons.

In addition to the exploration process, government permits are becoming increasingly difficult to obtain, making mining more difficult. Obtaining the licenses and permits needed for mining companies to start operation may take several years.

Furthermore, Reade stated that many mining projects are planned for remote areas, requiring infrastructure such as roads, electrical utilities, and water, which increases the cost of building these mines and funding their operations.

He concluded: 'Finding gold, obtaining permits, financing, and operations are becoming increasingly difficult.'

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