On Tuesday, July 23, the US economic calendar is busy this week and will release key data. Driven by expectations of interest rate cuts, the US dollar has risen and US Treasury yields have fallen. The gold price rebounded and rose above $2400/ounce, ending the continuous four-day decline caused by the fall in US Treasury yields. #Gold Review#
Spot gold rose by 0.54%, closing at $2409.16/ounce, with a trading range of $2388.35-2412.05 during the day. Spot silver rose by 0.38%, closing at $29.2440/ounce. Among gold and silver mining stocks, Coeur Mining, Barrick Gold, GAU rose by up to 1.24%, Pan American Silver rose by more than 0.2%, while B2gold fell by nearly 0.7% and ASM fell by 1.9%.
(Chart of Spot Gold Trend, Source: FX168)
[Market News Analysis]
After gold and silver hit historic highs, both have experienced rapid declines. Recently, the spot gold price in London has dropped by more than $100/ounce, and the spot silver price in London has dropped by more than 9% since its high on July 11. Analysts believe that after the market has fully priced in the expectation of a rate cut by the Federal Reserve, there is a lack of further upward momentum in the short term. In addition, the short-term US dollar index stopped falling and rebounded, causing longs to take profit and leading to a top reversal in precious metal prices. However, in the medium and long term, gold is still one of the few assets that can provide a certain opportunity, and the annual upward cycle is expected to continue.
Analysts believe that after the market has fully priced in the expectation of a rate cut by the Federal Reserve, there is a lack of further upward momentum in the short term. In addition, the short-term US dollar index stopped falling and rebounded, causing longs to take profit and leading to a top reversal in precious metal prices. However, in the medium and long term, gold is still one of the few assets that can provide a certain opportunity, and the annual upward cycle is expected to continue.
Kristalina Georgieva, the managing director of the International Monetary Fund (IMF), said at a seminar in Asuncion, the capital of Paraguay, that the global economy faces unfavorable factors such as sustained high inflation, slowing growth, and geopolitical conflicts. Georgieva said in a webinar, 'Although inflation has fallen, it is still pervasive, and as a result, interest rates may remain high for a longer period of time. It is important to reduce inflation to the target level.'
Recently, in the context of the cooling inflation and weak economic data of the US Federal Reserve, 'rate cut trading' has swept the US financial market. According to a survey by Reuters, as market participants await the Fed's first rate cut, non-yielding metals ended their four-day decline. The survey showed that 73 of 100 economists expect Powell and his colleagues to loosen policies by 50 basis points (bps) in 2024, of which 13 expect to cut 25 basis points, and 3 expect no rate cut.
As of now, the CME FedWatch Tool shows that the market has almost fully priced in a Fed rate cut in September. As of July 22nd local time, the yield on the 10-year US Treasury bond was 4.25%, a cumulative decline of over 3.8% for the month; the yield on the 2-year US Treasury bond, which is more sensitive to monetary policy, was 4.53%, a cumulative decline of 5.33% for the month.
In late New York trading, the yield on the 10-year benchmark US Treasury bond fell by 0.98 basis points, to 4.2427%, and refreshed the daily low at 4.2194% at 23:42 Beijing time. The yield on the 2-year US bond fell 3.00 basis points to 4.4871%. After the US Treasury Department released the results of two-year bond continued issuance at 01:00, it quickly fell to a daily low of 4.4764%. The yield spread between 2/10-year US bonds rose by 2.231 basis points to -24.432 basis points.
The core personal consumption expenditure (PCE) price index may be the last puzzle for the Federal Reserve officials to relax policy. Commenting on behalf of unnamed sources, Reuters said: 'Anything below expectations (PCE data) is good news, mainly because it will make the market believe that the US central bank will ease monetary policy in September.'
Carsten Fritsch, a commodity strategist at Deutsche Bank, pointed out that the gold market began to fall after a strong price rise last Thursday, and it has now turned into a sharp correction. 'The gold price has been under pressure for three consecutive days and is currently trading near $2400/ounce. The current price has fallen by about $100 since last Wednesday's historical high. This means that all the gains since the release of US inflation data last week have been wiped out. Expectations for a rate cut have risen sharply, leading to a rise in prices to the aforementioned historical highs,' Fritsch said. 'The net long position of speculative financial investors has further increased to the highest level since March 2020, which also supported the rise in prices. It can be imagined that selling pressure now also comes from this area. The next CFTC data on Friday may reveal this. Rate cut expectations have recently weakened. However, according to the Fed funds futures, the rate cut in September and a total of 2-3 rate cuts by the end of the year are still priced in. Therefore, gold pressure should now ease and prices should stabilize around $2400/ounce, which is more in line with these expectations than the price level of $2484/ounce.'
Meanwhile, he pointed out that silver has recently been under more pressure than gold. "Since last Wednesday, the price of silver has fallen by about 8%, currently trading at less than $29/ounce, the lowest level since the end of June. Therefore, the gold/silver ratio has risen to 83, the lowest level since mid-May. Silver usually follows the price trend of gold disproportionately. However, this situation has only been true for the downside recently." "Previously, gold rose after US inflation data was released, but silver basically ignored this upward trend. Therefore, the gold/silver ratio had already been rising before the recent price plunge. Silver's relative weakness may be due to weak base metals." "This is because, according to Silver Institute data, industrial applications are expected to account for nearly 60% of silver demand this year. The largest part of the increase in industrial silver demand is expected to come from the photovoltaic industry, which is why the negative response of silver prices seems to have been exaggerated."