Gold tangled with Fed policy and recession

The investment community is increasingly concerned about the deteriorating global economic environment, which has led to severe deleveraging in many markets, including gold. However, as we've seen in the oil market, these sell-offs could represent excellent long-term investment opportunities, and perhaps more importantly, a worthwhile safe-haven trade.

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Gold is tangled as hawkish Fed policy collides with recession fears. After all, Fed rate hike cycles are often associated with rising recession risks. This rate hike cycle is unlike any before because the Fed has limited ability to control inflation given supply chain disruptions. Gold investors expect stagflation, and even so, central banks facing a credit crunch are likely to continue raising interest rates. Gold still faces a tug of war while waiting for a catalyst to break the deadlock.

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As the U.S. dollar strengthened sharply, gold prices continued to fall, falling to the lowest level in nearly two weeks at $1,816 an ounce. Poor U.S. economic data appears to be behind the dollar's strength - an unexpectedly sharp drop in consumer confidence in June. Some investors believe that the Fed will not raise rates so sharply after all, given the increasingly bleak economic outlook, so expectations for rate hikes have declined, which would reduce the risk of a recession to some extent. Another factor that could support the dollar's strength is that European Central Bank President Christine Lagarde has rejected the idea of ​​raising rates by 50 basis points in July, saying a rate hike of that magnitude would not happen until September.

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Earlier, the United States began banning gold imports from Russia, fulfilling a pledge this week by G7 leaders to further sanction Russia. However, the move is seen as symbolic as Russia's gold exports to the West have dried up. Gold traders should pay close attention to the discussions on monetary policy at the European Central Bank Forum (ECBForum) by the presidents of the US, UK and European Central Bank, which appear to be looking for fresh momentum.

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Suki Cooper, precious metals analyst at Standard Chartered Bank, said: "Gold prices are sandwiched between two scenarios, one is the intensification of interest rate hike expectations, and the other is fear that if monetary policy fails to soften economic activity and reduce inflation, inflation will continue to be high." Analysts said, This could lead to lower gold prices in the second half of the year. “Rising recession risk has temporarily prevented outright short positions, but we expect gold to return to tracking real yields for the remainder of 2022, weighing on gold prices (though given the physical market’s reaction to price declines,” she said. The bottom of gold will be higher).”

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China’s latest trade data shows that demand for precious metals remained subdued in May, but did not deteriorate further…India’s gold imports rebounded in May, more than tripling month-on-month and more than eight-fold year-on-year…Swiss trade data confirmed these trends. Data for May showed an uptick in shipments from major brick-and-mortar shipping hubs, suggesting gold prices have been well supported by brick-and-mortar markets over the past month.

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Commerzbank: A large number of ETF capital outflows put pressure on gold and silver; gold prices erased gains in the Asian session and fell deeper to $1,820/oz. At the same time, spot silver also fell from about $25/oz at the beginning of the quarter to 21/oz USD/oz. The net outflow of ETF funds is one of the main reasons for the poor performance of precious metals. According to data tracked by institutions, gold ETF holdings fell by 6 tons yesterday, and silver holdings have decreased by 1,100 tons since the beginning of this month. The weakness of silver is also reflected in the gold-silver ratio, which is currently around 86, which is at a very high level. Silver as an investment metal is under pressure from weak gold prices, and properties of industrial metals are under pressure from falling metal prices.