【TrueZhuo Finance】The Fed may raise interest rates at the end of the year, gold price falls below $4,300
As the US dollar and US Treasury yields rose in tandem, spot gold fell below $4,300, hitting its lowest level since March.
Gold is currently facing multiple headwinds. On one hand, last week's strong non-farm payroll data weakened expectations for interest rate cuts; on the other hand, the Middle East conflict has kept oil prices elevated, further fueling inflation concerns; meanwhile, several Federal Reserve officials have recently sent hawkish signals.
As the US May non-farm payroll data far exceeded expectations, market bets on a Fed rate hike within the year have rapidly heated up. Gold broke below the key support level of $4,400, while silver saw an even sharper decline, falling through the $70 to $72 support zone.
For gold, high inflation is not always a positive. If rising inflation prompts the Fed to maintain high interest rates or even resume rate hikes, rising real interest rates will diminish gold's appeal. For gold and silver, which generate no interest income, a high-interest-rate environment typically implies higher holding costs.
Given the relatively limited participation of speculative funds in the precious metals market over the past few months, the author believes the current decline is merely an orderly adjustment, not a crash. In the short term, breaking below key support is clearly negative; however, from a long-term perspective, this may present a buying-on-dips opportunity during the correction, as gold's long-term fundamentals still point to higher prices.
Currently, global debt issues continue to worsen, and the trend of central bank gold purchases has not yet reversed.
Silver has borne greater selling pressure. Silver possesses the dual attributes of a precious metal and an industrial metal. Against the backdrop of market concerns about the Fed maintaining high rates, potentially slowing economic growth, and risk assets facing sell-offs, silver's volatility tends to be greater than gold's. If gold continues to test the $4,000 level, silver's short-term decline will likely become more pronounced.
On the other hand, data released by the People's Bank of China shows that gold holdings increased by 320,000 ounces last month. This increase extends the longest streak of consecutive monthly purchases in the past decade. Despite the weak gold price environment, the domestic central bank persists in adding to its holdings.
In recent years, central bank gold purchase demand has been a key force supporting precious metal prices. Continued gold buying by global central banks helps hedge against the impact of weak investor demand and market volatility.
As the world's second-largest economy, China is focused on reducing its reliance on traditional reserve assets and increasing the allocation of alternative value reserve assets. The process of reserve diversification continues to be closely watched by market investors.
Geopolitical uncertainty and the trend of reserve diversification are core factors driving continued gold purchases by central banks. As global tensions intensify, countries are re-evaluating their reserve management strategies.
(Written by: Li Huifen, Chairman of the Greater Bay Area Family Office Association) (The author does not hold the aforementioned related stocks)
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