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11 June 2024 | FXGT.com

China’s Gold Buying Pause and US Rate Speculation Hit Gold Prices

  • Chinese Central Bank Gold Buying: Gold saw a significant decline on Friday, closing 3.50% lower after the People’s Bank of China announced it did not add gold to its reserves in May, ending an 18-month streak of purchases. This news triggered an initial decline in gold prices, although it remains unclear if this is a temporary pause or a longer-term shift in strategy.
  • Reduced Expectations for Fed Rate Cuts: Gold prices were further pressured on Friday afternoon as reduced expectations for a Federal Reserve rate cut in September weighed on the market. The strong US Nonfarm Payrolls data led to speculation that the Fed will maintain higher rates for longer, affecting demand for the precious metal.
  • Investor Sentiment: The broader market’s reaction included a sell-off in risk assets and a rise in US Treasury yields, reflecting a cautious approach towards potential rate cuts. The Federal Reserve’s balancing act between controlling inflation and supporting economic growth continues to create uncertainty.
  • Central Bank Activity: Despite China’s pause, central bank gold purchases remain robust globally. In April, central banks added 33 tons of gold, with Turkey leading the purchases this year. This continued demand is a crucial factor supporting gold prices.
  • Economic Factors: The broader financial landscape, including high inflation, geopolitical risks, and significant government spending, remains supportive of gold in the long term. The recent selloff appears to be an initial reaction to specific news events rather than a fundamental shift.
  • Political and Geopolitical Factors Limiting Downside: Political uncertainty in Europe, particularly following French President Emmanuel Macron’s decision to call snap elections, along with other geopolitical risks, are helping to limit the downside for gold prices.
  • Traders Await US CPI and FOMC Decision: Market participants are hesitant ahead of the release of the latest US consumer inflation figures and the Federal Open Market Committee (FOMC) decision on Wednesday. While no policy changes are expected, the press conference and the Summary of Economic Projections will provide insights into the Fed’s current thinking.
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