Gold market analysis: Although international organizations increase inflation expectations, gold prices continue to trade sideways

On Wednesday (June 8), although the Organization for Economic Cooperation and Development (OECD) lowered its economic growth forecast for this year due to rising inflationary pressures, the gold market remained in a relatively neutral range, with gold prices continuing to hold at around $1,850.



International organizations are raising the alarm on the health of the global economy as rising food and energy prices weigh on economic activity. The World Bank on Tuesday cut its 2022 economic growth forecast by nearly a third and warned of rising risks of stagflation, providing some support for safe-haven gold. The OECD was the latest to cut growth forecasts. The OECD said in its latest report on Wednesday that global GDP is expected to grow by 3% this year, down from a previous forecast of 4.5%; meanwhile, the economy is expected to grow by 2.75% in 2023. Inflation remains the biggest threat to the global economy, the OECD said. While inflation fears still dominate global financial markets, there has not been much new interest in gold as a traditional inflation hedge. Gold prices have been consolidating around $1,850 for the past three weeks. Gold prices have been weak recently as central banks around the world seek to tighten interest rates in an attempt to cool scorching inflationary pressures. While gold is considered a hedge against inflation and political and economic uncertainty, rising interest rates can increase the opportunity cost of holding this non-yielding asset. Two key events of the week are on the horizon: the European Central Bank will hold its regular monetary policy meeting on Thursday, where it is expected to lay out plans to tighten monetary policy. The U.S. consumer price index (CPI) for May will be released on Friday. If the data continues to maintain high growth, it will increase the market's expectations for the Fed to continue to vigorously promote the pace of interest rate hikes. In the short term, such macro aspects may continue to be negative for gold.

From a technical point of view, although gold rose after a shock yesterday, it pulled back sharply after the 1860 line encountered resistance. The daily line closed with a small cross star, and the upward momentum was insufficient. The broader market is still oscillating and consolidating within a narrow range around the $1,850 level. From the hourly chart, it can be seen that the gold rebounded and fell back to the bottom of the large-scale consolidation after the last pressure position, and the bears still dominated. Moreover, the Fed's decision to raise interest rates next week is imminent. Before that, gold must be under pressure, and after a long period of consolidation, the probability of gold falling to open a new wave will also increase. If gold falls through 1840, the bottom will test the support of 1838, 1820, and 1800, while the top will only see the opportunity to climb higher levels after breaking through the recent sideways resistance of 1870.

Personal views only, do not represent the views of the organization

Bank of China Guangdong Branch Wang Gang Source: Bank of China official website