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Market News Gold trading reminder: U.S. dollar and U.S. bond yield rebounds weigh on gold prices, focus on Biden-Powell meeting

Gold trading reminder: U.S. dollar and U.S. bond yield rebounds weigh on gold prices, focus on Biden-Powell meeting

Spot gold fluctuated slightly, hitting a three-day low of $1,845.85 an ounce at one point, mainly due to the rebound in the dollar and U.S. bonds. Federal Reserve Governor Waller supports raising interest rates by 50 basis points at each meeting in the future, helping U.S. bond yields to rise, the market's lessened concerns about the epidemic in Asia, and rising stock markets in Asia and Europe, all of which put pressure on gold prices. On this trading day, we need to pay attention to the performance of the CPI data in the euro zone in May, especially the talks between US President Biden and Federal Reserve Chairman Powell.

2022-05-31
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During the Asian session on Tuesday (May 31), spot gold fluctuated slightly, hitting a three-day low of $1,845.85 per ounce at one point, which was mainly suppressed by the rebound in the dollar and U.S. bonds. Federal Reserve Governor Waller supports raising interest rates by 50 basis points at each meeting in the future, helping U.S. bond yields to rise, the market's lessened concerns about the epidemic in Asia, and rising stock markets in Asia and Europe, all of which put pressure on gold prices. However, the geopolitical situation in Russia and Ukraine is still tense, and inflation in Germany and Spain is high, which still attracts investors to buy gold on dips, providing support for gold prices.

The short-term gold price is in a volatile trend. On this trading day, we need to pay attention to the performance of the CPI data in the euro zone in May, especially the talks between US President Biden and Federal Reserve Chairman Powell, pay attention to the news about the geopolitical situation in Russia and Ukraine and the new crown epidemic, pay attention to the performance of global stock markets and Changes in market sentiment.

Craig Erlam, senior market analyst at OANDA, said: “Gold could gain further if concerns about the economy further weigh on yields, with $1,870 being the first test, then $1,900. Sentiment remains extremely fragile, but as long as the market pays attention The focus is on a worsening economic outlook, rather than pricing in more rate hikes, and gold can continue to perform well.”



Fundamentals are mostly bullish


[Russian troops enter the edge of Severo Donetsk and launch a fierce attack]

Ukrainian and Russian troops fought on the outskirts of Severo Donetsk on Monday. It was the last city Kyiv controlled in Luhansk province and the focal point of Moscow's offensive in eastern Ukraine.

Russian shelling has razed much of Severo Donetsk, but Ukrainian defenses have slowed broader Russian operations across the Donbass.

Luhansk Governor Serhiy Gaidai said that Russian troops had entered the southeastern and northeastern edges of Severo Donetsk.

"They use the same tactics over and over again. Shelling for hours -- three hours, four hours, five hours -- and then attacking," he said. "Those who attacked would die, then shelling and attacking. And it will follow, round after round, until they have a breakthrough somewhere."

He also said the suburban air "was filled with the horrific smell of death" as temperatures rose.

[EU resolves the deadlock on Russia's oil ban, agrees to reduce imports by 90% by the end of the year]

EU leaders agreed on Monday to cut Russian oil imports by 90 percent by the end of the year, resolving a deadlock over EU sanctions on Russian oil.

Other projects in the EU's sixth set of sanctions against Russia, including the removal of Russia's largest bank Sberbank, from the Society for Worldwide Interbank Financial Telecommunication (SWIFT), are expected to go smoothly following a consensus on oil sanctions, diplomats said. system.

European Council President Charles Michel tweeted that EU leaders agreed on Monday to ban Russia's oil exports to the bloc, covering more than two-thirds of Russian imports, cutting off Russia's war machine. A huge source of funding.

EU leaders agreed that Hungary and some countries would be exempted from the oil ban. Hungary is landlocked and highly reliant on pipelines to import Russian oil, making it a major obstacle to the oil ban.

Before Michel's announcement, Ukrainian President Volodymyr Zelensky said the situation in the Donbas region remained "extremely serious". After Russia failed to capture the Ukrainian capital Kyiv, it concentrated its force in the Donbas region in March.

Earlier, Zelensky accused EU leaders of being too soft on Moscow at a time when EU leaders appeared unable to agree on a ban on Russian oil imports.

[Russia stops supplying natural gas to Dutch energy companies, Denmark may be next]

GasTerra BV said gas supplies will stop on Tuesday after the company rejected new payment terms imposed by Gazprom and Russian President Vladimir Putin. Denmark's Orsted A/S said it was also reluctant to compromise and was preparing for a supply cut.

Russia has implemented new payment terms for European companies, which include opening ruble accounts with Gazprombank. Traders have been closely watching payment disputes. Gazprom has stopped supplying gas to Poland, Bulgaria and Finland due to payment problems.

"GasTerra will not agree to Gazprom's payment request," the company said in a statement on its website. "Because there is a risk of violating EU sanctions and there are too many financial and operational risks in the method of payment required."

European countries are divided over how to handle Moscow's demands, and utilities have responded differently to the challenge. Major buyers such as Italy's Eni SpA and Germany's Uniper SE have said they have found a payment solution and expect supplies to continue.

Orsted's payment deadline is Tuesday, and the company will continue to pay in euros. "It is possible that Gazprom will stop supplying gas to Orsted," the company said.

Denmark and the Netherlands also rely on domestic production for supply, but domestic production has been declining for several years and is not enough to fully meet consumption needs.

[German inflation rises to near 50-year high in May]

German inflation rose to a near 50-year high in May, boosted by soaring energy and food prices, reinforcing the case for the European Central Bank to raise interest rates by a massive 0.5 percentage point in July.

First, because of the supply chain problems after the epidemic, and then because of the Russian-Ukrainian war, prices across Europe have risen sharply in the past year, indicating that prices have entered a new era of rapid price increases, sweeping away the ultra-low inflation trend of the past 10 years.

Data from Germany's Federal Statistics Office on Monday showed that the preliminary reading of the Harmonized Consumer Price Index (HICP) rose to 8.7% year-on-year in May from 7.8% in the previous month, well above the 8% expected.



The last time inflation was this high was in the winter of 1973/1974, when the first oil crisis led to a new cycle of unmanageable inflation.

Compared with other central banks around the world, the ECB came relatively late to control the price surge, but last week the ECB made it clear that it must raise interest rates to prevent high inflation from becoming entrenched.

The question now is the strength of its forthcoming action.

While ECB President Christine Lagarde and Chief Economist Philip Lane have made a good case for raising rates by 25 basis points each in July and September, analysts believe a larger rate -- 50 basis points -- is likely. rate hike.

“The ECB has clearly passed the stage of discussing if and when it should raise policy rates,” said ING analyst Carsten Brzeski. Start with a basis point."

"If core inflation in the euro zone continues to accelerate in May and June, then Liam and Lagarde may still regret their earlier new commitments."

While most policymakers appeared to support a quarter-point rate hike in July, central bankers in Austria, Latvia and the Netherlands all said a 50-basis-point hike should remain open for now.

[Spanish inflation unexpectedly accelerates]

Inflation unexpectedly accelerated in Spain, denting hopes that record prices in the euro zone are peaking and putting more pressure on the ECB to act.

Spain's EU Harmonized CPI rose to 8.5% in May from 8.3% in the previous month, with higher fuel prices offsetting lower electricity prices;

Excluding volatile factors such as food and energy, the growth rate of basic prices accelerated to 4.9%.

The data, which provides a preliminary indication of inflation trends in the 19-nation euro zone, is expected to accelerate to 8.1% in Germany due later on Monday, and Belgium is also due to release data for May. Preliminary Eurozone CPI will be released on Tuesday.



[IAEA: Iran's stockpiles of highly enriched uranium surge, while not cooperating with investigation]

Iran's stockpiles of highly enriched uranium have surged as the country continues to lay the groundwork for a massive expansion of its nuclear fuel production capacity, the International Atomic Energy Agency (IAEA) said.

The IAEA's quarterly safeguards report comes as talks between Iran and major powers to restart the nuclear deal stall.

Talks to curb Iran's nuclear activities in exchange for sanctions relief collapsed two months ago, and diplomats said prospects for a deal in the short term were bleak.

Without restrictions, Iran has accumulated 43 kilograms (95 pounds) of 60 percent uranium stockpiles, an increase of 30 percent over the past three months, according to the 16-page report released by the IAEA on Monday and obtained by Bloomberg. In a separate 10-page document, the inspectors wrote that the Tehran government also continued to obstruct investigations of traces of uranium found at several undeclared sites.

"Iran has not provided a technically credible explanation," IAEA Director General Grossi wrote. "The IAEA cannot confirm the accuracy and completeness of Iran's declarations under the Comprehensive Safeguards Agreement."

Iran is suspected of providing incomplete information with potentially serious consequences. The basis for the entire set of international regulations enforced by the IAEA is the verification of the accuracy and completeness of nuclear material and nuclear-related activities declared by Iran.

The 35-member IAEA Council will meet in Vienna, Austria, on June 6, and diplomats may pass a resolution formally declaring to the UN Security Council that Iran is in breach of its obligations.



The fundamentals are mainly bearish


[Fed Governor Waller supports raising interest rates by 50 basis points at each future meeting until inflation falls sharply]

Federal Reserve Governor Christopher Waller said on Monday that the Fed should be ready to raise interest rates by 50 basis points at each meeting from now until inflation is firmly under control. This underscores the intense debate within the Fed over how aggressively it needs to tighten policy to bring down high inflation.

"I advocate for 50 basis points of rate hikes to be factored into every meeting until you see a big pullback in inflation. Until that happens, I don't see a reason to stop," said Waller for Monetary and Financial Stability Research in Frankfurt, Germany said after the speech. He earlier confirmed that he wants to raise rates by 50 basis points at "several" future meetings.

Federal Reserve Chairman Jerome Powell and U.S. President Joe Biden will meet on Tuesday to discuss the state of the U.S. and global economy.

Earlier this month, the Fed raised its target range for its benchmark policy rate by 50 basis points to 0.75%-1%, and plans to raise rates by the same amount at its next two meetings in June and July.

The Fed debate has turned to how much rate hikes are needed for the rest of the year. Most policymakers said they wanted to wait and see how much inflation fell in the summer before deciding whether they needed to increase or decrease rate hikes at their September meeting.

However, Atlanta Fed President Raphael Bostic said last week that he favored a “pause” at the September meeting to allow time to assess the impact of previous moves on the economy and inflation.

By contrast, St. Louis Fed President Bullard said he wants the Fed to raise interest rates to 3.5% by the end of the year, meaning a 50 basis point hike at all remaining meetings this year.

Waller, who is in the same hawkish camp as Bullard, said he would like to see the Fed raise policy rates above neutral by the end of the year. A neutral rate is a level that neither stimulates nor constrains economic growth. The neutral rate was around 2.5%, according to the median estimate of Fed policymakers at their March meeting.

Investors now expect the federal funds rate to be between 2.50% and 2.75% by year-end.

Employment can remain strong

Waller said he was optimistic that a strong labor market would be able to handle rate hikes without a sharp rise in unemployment.

"If we had the unemployment rate just edging up to 4.25 percent, I would think that's a pretty good performance," Waller said. The U.S. unemployment rate is currently 3.6%.

There are now signs that inflation has peaked. The personal consumption expenditures (PCE) price index, the Fed's preferred gauge of inflation, rose 6.3% in the 12 months through April, the Commerce Department said on Friday, after rising 6.6% in March.

Waller, however, wasn't impressed by the numbers. "Any measure... Headline inflation has been above 4% for about a year, and core inflation has not pulled back enough to hit the Fed's target anytime soon."

[U.S. dollar and U.S. bond yields rebounded]

Although the U.S. dollar index continued its decline on Monday, it steadied and rebounded on Tuesday, and is now up 0.3% to trade around 101.65, recovering all of Monday's losses. The yield on the 10-year U.S. Treasury note jumped 10 basis points to 2.840% on Tuesday, after markets were closed for a day on Monday.

This has increased the downward pressure on gold prices in the short term, because gold is denominated in dollars and is a non-yielding asset, and rising U.S. bond yields increase the opportunity cost of holding gold.



【European stock market rose】

European shares hit their highest level in nearly a month on Monday, as optimism buoyed by easing coronavirus lockdowns in Asia and adding fresh stimulus.

The pan-European STOXX 600 index rose 0.6% to 447.79, its highest level since early May, with luxury goods shares providing the biggest boost due to strong demand for luxury goods in China.

"Everyone breathes a sigh of relief ... the strict lockdowns will be eased, especially in Shanghai and Beijing, because (investors) are really concerned about the zeroing strategy being implemented and the impact on the Chinese economy," said Hargreaves Lansdown senior investment and market analyst Susannah Streeter said.

Stocks were broadly higher, led by technology stocks, which rose 2.0%. Trading was light, however, as U.S. stocks were closed for the Memorial Day holiday.

European stocks had their best week since mid-March as upbeat U.S. consumer confidence data, signs of inflation peaking and clarity on the Federal Reserve's future plans calmed market participants.

Data this week is expected to show euro zone inflation rising further from a record high last month, weighing on the ECB.

German inflation rose to the highest in nearly half a century in May, driven by soaring energy and food prices, reinforcing the case for the European Central Bank to sharply hike interest rates by half a percentage point in July.

The STOXX 600 index pared losses in May to 0.9% after gaining on Monday. Only March this year recorded a monthly rise.

As of Monday's close, Germany's DAX index closed up 0.79%, France's CAC 40 index rose 0.72%, and the British stock FTSE 100 index closed up 0.19%.

Valeria Bednarik, chief analyst at FXStreet, pointed out that gold prices fell and market participants were still selling safe-haven assets. Global stock markets extended their recent gains despite U.S. markets being closed. However, the lack of demand for the U.S. dollar kept gold from falling further.

Vipul Srivastava, a metals and energy research analyst at Indian broker Religare Broking Limited, reported that gold prices rose last week mainly due to the decline in the US dollar index and US bond yields, but including the more hawkish Federal Reserve. The stance, as well as the rebound in global stock markets, also restrained the room for gold prices to rise.

Outlook


U.S. President Joe Biden will hold a rare meeting with Federal Reserve Chairman Jerome Powell in the Oval Office on Tuesday, as U.S. inflation hits the highest level in decades, angering people and hurting Biden's popularity with voters status.

The two will discuss the state of the U.S. and global economy, according to a White House statement. Investors need to focus.

In the short-term, we need to pay attention to the breakthrough of the 1840-1870 area. The former is the support of the 200-day moving average, and it is also the support of the 4-hour Bollinger line, while the latter is the resistance of the recent high point, and multiple resistances such as the 4-hour Bollinger line are also are near this location. Considering that the demand for the rebound after the continuous decline of the US dollar is relatively large, and the recovery of global risk appetite has also suppressed the safe-haven demand of gold. Before the further escalation of the geopolitical situation, the price of gold is slightly inclined to fluctuate and decline in the short-term.


At 10:48 GMT+8, spot gold is now at $1,850.91 per ounce.
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