Gold faces a decisive week

10 Haziran 2024

Gold faces a decisive week with a ser of influential political, geopolitical and economic factors

Today’s market analysis on behalf of Samer Hasn Market Analyst and part of the Research Team at XS.com

Gold is consolidating today near the level of $2,293 per ounce after the sharp losses it faced last Friday by more than 3%.

Gold’s declines at that time came from the two most vital driving factors: the hope of an interest rate cut, which diminished after the labor market largely exceeded expectations and the break of an 18-month streak of purchases of gold bullion by the People’s Bank of China.

The weekend also witnessed a shift in the political scene, both in Europe and in Israel. We witnessed the superiority of the right-wing parties in Germany and France, in addition to the rift that the war government in Israel suffered after the resignation of the opposition leader.

Gold markets may not be paying much attention to changes in the partisan landscape around the world. However, this rising trend of right-wing movements and the extreme right’s monopolization of power in Israel may ultimately lead to changes in the geopolitical reality, whether in Ukraine or in the Middle East. While these fronts played the most prominent role in recovering gold from its previously relatively very low levels.

The right-wing parties in Europe generally oppose plunging into the war in Ukraine due to the enormous economic burdens it entails, the additional influx of refugees, and they want to restore relations with Russia. Also, the departure of Benjamin Netanyahu’s biggest opponent from the war government, in addition to two other ministers, may encourage the far-right coalition to continue the ground war in Gaza Strip, and it may also enable it to take the decision to ignite the southern Lebanese front, paving the way for the region to enter a state of total chaos.

What the gold markets will be counting on this week to regain lost gains is a further slowdown in inflation and a non-tightening speech from the Federal Reserve after announcing its decision this week, in addition to any emergency change we may witness in the Middle East, especially in southern Lebanon.

While annual Consumer Price Index (CPI) inflation is expected to hold at 3.4% in May and monthly growth to slow to 0.1%, in addition to a further slowdown in producer price growth (PPI) to 0.1% also on a monthly basis.

The Federal Reserve is also expected to keep current rates unchanged, while the focus will remain on monetary policymakers’ expectations of the path of inflation and the macroeconomy. While the tightening speech may reinforce the hypothesis of higher-for-longer rates, and this is what we witnessed in a similar way in the outcomes of the European Central Bank meeting last week, when it began cutting rates for the first time in the year 2019.

As for the coming months, the markets expect that we will witness an interest rate cut with a probability of 48% and 62% in both next September and November, according to the CME FedWatch Tool. While these possibilities reflect a noticeable decline in sentiment around the cut compared to what it was a week ago.

 ZAID BAREM / YMM