International gold prices fell, but investors have reasons to continue to allocate gold in the face of this risk

On Wednesday (June 8), international gold prices edged lower, as rising U.S. dollar and U.S. bond yields limited demand for gold. Investors await the upcoming U.S. inflation data for further insights into the prospect of a rate hike by the Federal Reserve. But the risk of stagflation should continue to encourage many investors to allocate to gold.

At GMT+8 15:24, spot gold fell 0.29% to US$1,846.63 per ounce; the main COMEX gold futures contract fell 0.17% to US$1,848.9 per ounce; the US dollar index rose 0.25% to 102.603.


Edward Meir, analyst at ED&F Man Capital Markets, said: "Gold has been trading sideways for the past few weeks. I think the reason is that people may be optimistic about some inflation data ... Inflation may be approaching a peak ... If inflation tends to Stable, that's not conducive to gold rising."

U.S. Treasury Secretary Yellen told senators on Tuesday (June 7) that the current level of U.S. inflation is "unacceptable" and she expects inflation to remain high and that the Biden administration may raise its inflation forecast for this year in its budget proposal. Although she is very hopeful that price increases will start to fade soon.

Gold's gains were largely limited by the tightening of monetary policy by central banks around the world. Investors now await the release of the core consumer price index (CPI) due on Friday (June 10). The market expects that the overall and core CPI of the United States are expected to rise by 8.3% and 5.9% year-on-year respectively in May, and the prospect of aggressive interest rate hikes by the Federal Reserve is difficult to shake.

U.S. consumers, who are highly dependent on credit cards, could face challenges as borrowing costs rise. "While credit can help support spending now, it may come at the expense of future household financial health," said Tim Quinlan, an economist at Wells Fargo.

According to Rabobank economists, the U.S. may not be in a recession this year. However, a recession in 2023 seems inevitable. “Either an exogenous supply shock will reduce business activity, or the Fed’s response to persistently high inflation will play a role. The timing of the recession will depend on whether it is exogenous or endogenous. Given current employment, Consumption and investment are strong and we think organic growth will be decisive. That means a 2023 recession is more likely than a 2022 recession.”

Neil Meader, head of precious metals at Metals Focus, said: “With the U.S. economy slowing and inflation stubbornly high, the risk of stagflation is growing, while other systemic risks abound. This should continue to encourage many investors to allocate to gold, especially It's when gold prices correct and encourage bargain hunting."

The World Bank on Tuesday lowered its 2022 global growth forecast to 2.9 percent from 4.1 percent in January. Governor David Malpass said the risks of stagflation and the Russia-Ukraine war have been hitting growth and a recession will be unavoidable for many countries. Meanwhile, while global inflation is expected to moderate next year, inflation is likely to remain above target in many economies.