Spot gold fell again this week after a week, but the decline was limited, with more than half of the losses made up as of press time. A number of US economic data, including non-farmers, were released this week, solidifying the outlook for the Fed's accelerated interest rate hike in May, thus bearish gold prices. but the difficult progress of the Russian-Ukrainian peace talks and the supply chain disruption caused by the war continue to support gold's safe-haven and anti-inflationary charm.
As of press time, spot gold fell 1.36 per cent to $1931.30 an ounce this week, hitting an intraday low of $1889.98 since Feb. 25.
The Fed is expected to raise interest rates by 50 basis points in May
Us non-farm payrolls in March were lower than expected, but the previous value was revised upwards; the US unemployment rate in March continued to hit its lowest level since February 2020; and the average annual rate of hourly wage in March reached 5.60 per cent, re-approaching the 5.70 per cent high set in January since May 2020.
After the data were released, CME's Fed Watch tool showed that the probability of the Fed raising interest rates by 25 basis points, 50 basis points and 75 basis points by May was 32.3%, 67.7% and 0%, respectively. By June, the probability of raising interest rates by 25 basis points or 50 basis points is 0%, the probability of raising interest rates by 75 basis points is 24.9%, the probability of raising interest rates by 100 basis points is 59.6%, and the probability of raising interest rates by 125 basis points is 15.5%. (the probability of raising interest rates by 25 basis points in May rose slightly)
The data show that the US labour market is still strong and the job recovery seems to be on track. The labour market is close to the most tense state in history. This has contributed to rising wage pressures and created upside risks to inflation.
A fully recovered labour market is the last of the three criteria the Fed wants to see before it starts raising interest rates. The Fed has decided that the job market is strong enough for it to shift its focus to fighting inflation.
Data released earlier this week showed that initial jobless claims in the latest week were still well below the pre-epidemic average, with renewed jobless claims falling to their lowest level since December 1969; the Fed's most closely watched inflation indicator, the core personal consumption expenditure (PCE) price index, rose 5.4 per cent in February from a year earlier, the biggest increase since April 1983.
The prospect of an accelerated rate rise by the Federal Reserve is bullish, suggesting that gold is unlikely to rise sharply in the future. But gold traders are weighing geopolitical risks against the potential for further inflation, keeping the prospect of holding gold even as the central bank raises interest rates.
The peace talks between Russia and Ukraine are making difficult progress
Russia and Ukraine held face-to-face talks for the first time in about two weeks, and there was a glimmer of hope for a cease-fire agreement, but since then the war between Russia and Ukraine has continued. Russian negotiators say Russia's position on the Donbass region and Crimea has not changed.
The United States on Thursday announced new sanctions against Russia, targeting the technology industry, which it described as a "malicious cyber actor" and a network to evade sanctions. The United States has also paved the way for action against more Russian industries.
As the Russian army prepares to launch new attacks in eastern Ukraine, the prospects for the implementation of the Russian-Ukrainian peace talks in the market are cautious, and the resumption of peace talks after that is difficult to resolve the problem quickly, and the decline in gold is limited.
The prospect of the war between Russia and Ukraine is still uncertain, and the global economy continues to face increasing supply chain disruptions as a result of the war, increasing upward pressure on prices and will continue to be the main factor supporting the trend of gold prices.
Bob Haberkorn, senior market strategist at RJO Futures, said: "the overall sentiment in the market is that investors are seeking safety. If there is some positive news from the conflict between Russia and Ukraine, we may see gold prices fall back, but I think traders will see it as a buying opportunity because of inflation anxiety."
High inflation may be long-term
U.S. president Joe Biden on Thursday launched the largest emergency oil reserve release plan in the history of the United States, and asked oil companies to drill for more oil. This is part of a broad effort by Biden to tackle inflation.
The soaring cost of living "causes people who rely on savings or investment to find paid jobs again," according to a report on Thursday by Challenger, Gray & Christmas, a global employment assistance company.
Russian President Vladimir Putin threatened on Thursday to suspend contracts to supply natural gas to Europe unless settled in rubles. It was his strongest economic response to western sanctions so far. Russia supplies about 1/3 of European demand.
Russian lawmakers even said Russia could expand its demand for ruble payments for other commodities, including oil, grains, fertilisers, coal and metals, raising the risk that commodity prices could continue to soar and lead to a global recession.
Brian Lan, managing director of trader GoldSilver Central, said that in addition to the crisis in Ukraine, concerns about high inflation and whether major central banks can try to control inflation are putting pressure on the economy and helping gold perform well.
