Geopolitics still supports gold prices

A mild U.S. recession is "almost certain" in the third quarter as the Fed launches a historic blow to inflation. The Fed announced a 75 basis point rate hike on Thursday, the largest rate hike since 1994. Federal Reserve Chairman Jerome Powell also hinted that he intends to continue to aggressively tighten monetary policy to curb inflation. Earlier, the US CPI rose 8.6% year-on-year in May, the highest level since 1981.

​​

Federal Reserve Chairman Powell's public speech after the interest rate meeting was praised for his high emotional intelligence, which played a decisive role in stabilizing the market. He made it clear that a 75-basis-point rate hike is uncommon, softening the possibility of another 75-basis-point hike in July and easing market tension. Coupled with the Fed's expectation that economic growth will slow in the coming months, the dollar and U.S. bond yields have fallen sharply, and gold remains a good tool for financial markets to avoid the risk of large fluctuations.

​​

Many central banks around the world have demonstrated their determination to deal with high inflation this week. The Federal Reserve and the Swiss National Bank have successively hiked interest rates more significantly. Risk-sensitive assets have been severely hit, while safe-haven assets have failed to benefit from the deteriorating market sentiment, and interest rates have risen. Increases the opportunity cost of holding gold as a non-yielding asset. Gold prices have been volatile this week, falling below the bottom of their recent range and only recovering slightly around $1,800. A stronger U.S. dollar remains a major headwind for gold prices, and in this context, it's hard to imagine gold prices being truly favored. Even in a safe-haven environment, gold has not benefited much.

​​

Looking ahead, we expect a stronger dollar and a recovery in bond yields to limit gold prices as the Fed delivers on its hawkish stance, Fitch said in a report. However, gold prices will not fall back to pre-COVID-19 levels as gold will continue to be supported by the unfinished Russia-Ukraine conflict, rising global inflation and the ongoing COVID-19 pandemic.

​​

With U.S. Treasury yields soaring 3.39%, gold has fallen this month, and long-term inflation appears to be showing no signs of disappearing. However, the gold price is still supported by strong fundamentals. The geopolitical tensions in Russia and Ukraine, the turmoil in the financial market, the intensified threat of inflation (mainly energy and food) and the rising risk of stagflation will continue to support the gold price. With the Fed raising interest rates by 75 basis points this week, gold has performed well. The recent collapse of cryptocurrencies will allow the funds taken away from them to flow back into gold, and gold will return to its former glory.

​​

The United States is considering sending more "Haymas" high-mobility multiple rocket launcher systems to Ukraine. The ammunition of these "Haymas" high-mobility multiple rocket launcher systems is medium-range rockets with a range of 80 kilometers. The report quoted an unnamed U.S. Defense Department official as saying that the U.S. Department of Defense may plan to send four more "Haimas" high-mobility multiple rocket launcher systems to Ukraine during the next shipment of weapons and equipment to Ukraine. The U.S. Department of Defense is still in discussions on the program, and the final number could change, the official said. The proposal has not yet been finalized. Track the conflict situation between Russia and Ukraine.