Weekly Gold Market Review: Gold prices rose in a volatile manner, as US inflation eased and the Fed slowed interest rate hikes.
Gold prices fluctuated and climbed above $1950 during the week of Friday, July 14. This week's decline in US CPI and PPI cooled expectations of further interest rate hikes by the Federal Reserve, supporting gold prices. Next week, investors will focus on China's second-quarter GDP, as well as UK CPI and PPI data. The G20 meeting of finance ministers and central bank governors is also noteworthy.
Time:
2023-07-17 07:41
Huitong Finance APP News - Gold prices fluctuated and climbed this week (July 14), exceeding $1950. This week's decline in US CPI and PPI cooled expectations of Fed rate hikes, supporting gold prices. Next week, investors will focus on China's second-quarter GDP, as well as UK CPI and PPI data, and the G20 meeting of finance ministers and central bank governors is also worth watching. Let's take a look at the factors that influenced gold prices this week.
Data shows that the decline in US inflation supports higher gold prices.
This week's highly anticipated US June Consumer Price Index (CPI) rose slightly, with a year-on-year increase of 3.0%, the smallest in over two years, indicating further easing of inflation. Core CPI also recorded its smallest month-on-month increase since August 2021. The US June Producer Price Index (PPI) showed almost no increase, with the year-on-year increase being the smallest in nearly three years, further proving that the US economy has entered a disinflationary era.
On July 12, data released by the US Department of Labor showed that the US CPI rose 3% year-on-year in June, the smallest year-on-year increase in over two years. The core CPI rose 4.8% year-on-year in June, the lowest since October 2021.
The year-on-year growth rate of the US PPI in June slowed from 1.1% in the previous month to 0.1%, lower than the expected 0.4%, a new low since August 2020; the month-on-month increase was 0.1%, lower than the expected 0.2%. The year-on-year increase in core PPI in June was 2.4%, lower than the expected 2.6%, the lowest since February 2021.
Economists at Oxford Economics wrote in a report that the PPI increase in June was lower than expected, and the data for the previous two months was also revised down. Coupled with the CPI data released yesterday, these reports further support our view that the Fed will make its final rate hike of this tightening cycle in July.
Christopher Wong, a foreign exchange analyst at OCBC Bank, said that the sharp slowdown in US CPI aligns with our view that trading strategies will shift from higher and longer interest rate increases to an imminent end, and may soon become a trading pattern of more rate cuts in 2024.
Richmond Fed President Barkin said after the release of the CPI data that inflation is still too high, the Fed's target is 2%, and if it retreats too quickly, inflation will rebound, and the Fed will need to do even more.
Similarly, former New York Fed President William Dudley said that the latest data raises the question: Will July be the last rate hike? He would prefer to see slower non-farm payroll data and wage growth. If the labor market is too tight, it will be difficult for inflation to fall to 2%.
The slowdown in US economic growth and cooled expectations of Fed rate hikes support higher gold prices.
On July 13, Beijing time, the Federal Reserve released its fifth Beige Book of the year, a nationwide economic survey. The Beige Book shows that overall economic activity in the surveyed districts has grown slightly since late May, with five districts reporting slight or moderate growth, five reporting no change, and two reporting slight or moderate declines. Surveyed districts indicated that US economic growth may slow in the coming months.
From an inflation perspective, the Beige Book shows that prices generally rose slightly in the surveyed districts, with price growth slowing in several districts, and overall expectations that prices will stabilize or fall in the coming months. The survey results shown in the Beige Book are also basically consistent with the US inflation data that has just been released.
In addition, for the July Federal Reserve monetary policy meeting, the industry generally expects it to "restart" interest rate hikes. Combined with the "hawkish" signals recently issued by Federal Reserve officials, the possibility of the Federal Reserve raising interest rates by 25 basis points in July is very high. However, after this rate hike, the possibility of the Federal Reserve raising interest rates again in September will be significantly reduced.
According to the schedule released by the Federal Reserve, Beijing time on July 27, the Federal Reserve will hold another interest rate meeting. As of July 13, calculations using the CME Group's FedWatch tool show that the current market expectation of the Federal Reserve not raising interest rates in July is only 7.6%, and the probability of "restarting" a 25 basis point interest rate hike is as high as 92.4%.
Geopolitical tensions support higher gold prices.
The US and its allies at the NATO summit provided new long-term security assurances to Ukraine's resistance against Moscow's offensive.
On the 12th local time, the two-day NATO Vilnius summit concluded. During the summit, NATO pledged to increase its support for Ukraine. However, there are still divisions within NATO member states, with Hungary expressing opposition.
US President Biden said that Russian President Putin seriously underestimated NATO's determination. Meanwhile, the Kremlin said that Putin's visit to China is on the agenda, and the date of the visit will be announced after final confirmation.
Before the end of the NATO summit, the Group of Seven pledged to provide long-term security guarantees to Ukraine. However, on the core issue of Ukraine joining NATO, there are still divisions within NATO, and no invitation to join NATO has been issued to Ukraine. UK Defence Secretary Wallace pointed out that Ukraine's eventual accession to NATO is fully accepted, but the question is when it will happen.
Hungarian Foreign Minister Szijjártó said on the second day of the summit that he believed that not issuing an invitation to Ukraine to join NATO and not giving a timetable for Ukraine to join NATO was the only responsible decision NATO could make under the current circumstances.
Iranian Supreme Leader Khamenei said that Western countries are using Ukrainians as cannon fodder to fill the pockets of American arms manufacturers. They want Ukrainians to die so that Western arms manufacturers can continue to manufacture and sell weapons.
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In fact, as gold prices fluctuate, Wall Street's major banks have recently shown a clear divergence in their views on gold prices. Unlike Goldman Sachs and Deutsche Bank, which are optimistic about gold's performance, Citigroup believes that the long-term outlook for gold prices is not optimistic.
Although gold prices rose this week, market volatility has clearly increased. While the US-UK agreement is symbolic, its content is limited and insufficient to alleviate concerns about a global economic slowdown. Therefore, gold prices will continue to fluctuate between safe havens and policy signals, closely monitoring the Federal Reserve's interest rate expectations and global trade sentiment.