Gold market analysis: U.S. inflation data fell, gold edged up for second week in a row

Looking at the market trend last week, the two camps, stagnant inflation and inflation peaking, are looking for answers in the US economic data released in the past few days. With the release of the U.S. GDP and PCE indices, inflation peaked but broke the previous expectation that the Federal Reserve would raise interest rates wildly. Against this background, the dollar fell and gold rose slightly by 0.38% for the week, closing at $1,852.84 per ounce.



The latest economic data showed that U.S. new home sales in April fell to the lowest since April 2020, business activity slowed, and homebuilder stocks also weighed on the broader market. Durable goods orders for April, along with gloomy housing data, weighed on the dollar. According to the latest U.S. durable goods orders, growth slowed to 0.4% month-on-month, below market expectations, and lowered the previous reading by 0.6%. The U.S. core personal consumption expenditures (PCE) price index rose 4.9% year-on-year in April, down from 5.2% in the previous month and the lowest this year. The U.S. PCE, the Fed's preferred inflation measure, shows that U.S. inflation may have peaked and declined. To that end, the U.S. 10-year Treasury yield has fallen to 2.74%, down more than 13% from its recent high of over 3%. The U.S. dollar index also fell sharply for two consecutive weeks, with a weekly decline of 1.35% last week. A weaker dollar and a slide in U.S. bond yields helped gold stabilize near the $1,850 level in the shortened trading week. Meanwhile, market risk sentiment has improved and inflation concerns appear to have receded. Investors breathed a sigh of relief on Friday (May 27) when the U.S. Commerce Department announced that annual inflation rose 4.9% in April, down from 5.2% in March and below the peak of 5.3% in February. . Inflation fell in line with market expectations. The data also showed that consumption was healthy. This also seems to tell the market that with this round of aggressive rate hikes, the U.S. can avoid a hard hit to the economy. Once inflation is gradually confirmed to show clear signs of fading, and the Fed's interest rate hike expectations become moderate, it will be beneficial to gold, but at the same time, gold's inflation hedge effectiveness may also weaken.

Technically, gold has rebounded from last week's lows, but volatility indicators have declined. Although inflation may have peaked, some professional analysts believe that inflation will still be quite tricky during 2022. They believe that "inflation will drop sharply, and the Fed will stop raising interest rates aggressively, which may be a wishful thinking." In the following June and July, the market has generally priced in that the Fed will continue to raise interest rates, which will certainly be a positive for gold. unfavorable. Gold's weak rally on Friday seemed to have the taste of a second top, and now three tops appear to have formed above the $1860 level on the 4-hour chart, and Friday, even with the poor U.S. inflation data that was bullish for gold. The failure to produce a sharp upward move seems to indicate that the gold bulls in the current market lack confidence. This week will also usher in the US non-agricultural data for May. Whether gold can break the recent trend of narrow range consolidation remains to be seen!

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

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