Gold Monthly: The Rally Stalls

Commodity

Summary:

Gold hit an all-time high above $2,450/oz in May. However, prices have already drifted 5% from last month's peak after stronger-than-expected US jobs data and after China's central bank halted its gold purchases…

Strong US jobs dash Fed bets

Gold has risen almost 12% year-to-date, mostly amid optimism for a Fed pivot to monetary easing this year. Safe haven demand amid the conflicts in Ukraine and the Middle East, as well as buying by central banks, has also supported higher gold prices this year.

However, May's stronger-than-expected US jobs report has pushed back expectations on when the Fed may start cutting rates. Lower rates typically boost gold, which doesn't pay interest.

With inflation having remained sticky and the latest jobs numbers beating all expectations, our US economist expects the Fed to push their projections for rate cuts back, so they end up with two cuts in 2024 and four in 2025 instead of three and three.

If the Fed continues its cautious approach to easing, gold prices risk a pullback. We expect gold prices to remain volatile in the coming months as the market reacts to macro drivers, tracking geopolitical events and Fed rate policy.

China halts buying gold for reserves

China halted buying gold for reserves in May after the precious metal surged to a record high, ending an 18-month buying spree. Gold held by the People's Bank of China was unchanged at 72.80 million troy ounces in May, according to data released last week. This marked the first time the country's central bank did not add to its reserves since October 2022. This has left gold vulnerable to more downside pressure.

Gold demand from central banks posted its strongest start to any year on record in the first quarter, with China being the biggest buyer. Gold tends to become more attractive in times of instability when investors pile into safe-haven assets as a hedge against the economic climate, geopolitical tensions or inflation.

China's appetite for gold started to fade in April, when the People's Bank of China bought only 60,000 troy ounces, down from 160,000 ounces in March, and 390,000 ounces in February. Gold's record-breaking rally might dent demand for now.

ETF flows turn positive in May

Global gold ETFs saw inflows in May following a 12-month losing streak, according to the World Gold Council. During the month, Europe and Asia led global inflows while North America and other regions registered mild losses. Global gold ETF holdings rose to 3,088 tonnes by the end of the month.

Investor holdings in gold ETFs generally rise when gold prices gain, and vice versa. However, gold ETF holdings have been in decline for much of 2024, while spot gold prices have hit record after record, until ETF flows finally turned positive last month.

Gold may see more downside

We expect gold prices to come down slightly from their current levels this quarter as the Fed continues its cautious approach, and with geopolitics already being factored into the current price. We see prices averaging $2,300/oz in the second quarter and an annual average of $2,255/oz in 2024. We see prices peaking in the fourth quarter, averaging $2,350/oz on the assumption that the Fed starts cutting rates in the second half of the year and the dollar and yields weaken. Gold Monthly: The Rally Stalls_5

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Alex

Economic

Political

French markets fell on Monday after President Emmanuel Macron called snap parliamentary elections in a high-stakes gamble to foil advances by the far right in his country and across the EU.

France’s Cac 40 stock index slid 1.4 per cent and bonds were hit as investors reacted to the prospect of a government led by Marine Le Pen’s far-right movement, which trounced Macron’s centrist alliance in the weekend’s elections to the European parliament.

French banks, which hold substantial government debt and could be targeted for windfall taxes, were among the worst performers amid market concerns about a borrowing spree by the far right.

Macron said an early French legislative election — the two round-vote he scheduled for June 30 and July 7 — was needed to break the political “fever” afflicting the country and to clarify its future direction.

“This will be the most consequential parliamentary election for France and for the French in the history of the Fifth Republic,” finance minister Bruno Le Maire told RTL radio. Markets Hit By Macron Gamble On French Elections_1

Markets Hit By Macron Gamble On French Elections_1

The euro fell 0.4 per cent against the US dollar to $1.0755, amid EU-wide reverberations from the bloc’s elections and Macron’s decision.

Hard-right parties secured around a quarter of the seats in the European parliament, up from around a fifth.

France’s snap poll brings forward a potentially defining confrontation with the far right that had been looming on the horizon, with Macron due to stand down in 2027 and Le Pen on course to succeed him.

If her Rassemblement National were to form a government, its protectionist big-spending agenda could put Paris into conflict with Brussels and alarm investors.

A strong showing for RN in the legislative poll could trigger “an economic disaster” for France, said Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management.

“A lot of Le Pen’s policies would be inflationary,” he added, describing RN’s possible entry into government as “a big risk to businesses [and] to [France’s credit] rating”. Markets Hit By Macron Gamble On French Elections_2

Markets Hit By Macron Gamble On French Elections_2

After Macron’s decision to call an election, investors sold French government debt, with the yield on the benchmark 10-year bond, which moves inversely to price, up 0.13 percentage points to 3.24 per cent.

On the stock exchange, BNP Paribas was down 4.8 per cent, Société Générale fell 7.5 per cent and Crédit Agricole dropped 3.6 per cent. Insurer Axa fell 2.6 per cent while asset manager Amundi was down 2.1 per cent.

“There’s a ‘shoot first, think later’ mentality in markets . . . but investors have to price a higher risk premium,” said Emmanuel Cau, head of European equity strategy at Barclays.

The dissolution is an extraordinary gamble by Macron, who has already lost his parliamentary majority after winning a second term as president two years ago.

His alliance could be crushed, which would force him to appoint a prime minister from another party, leaving him with little power over domestic affairs with three years left as head of state.

The RN secured 31.4 per cent of the vote in Sunday’s EU poll, compared with 14.6 per cent for the French president’s centrist alliance.

Macron only narrowly avoided a humiliating third place behind the centre left, which took 13.9 per cent of the vote.

On Monday the country’s mainstream centre right and centre left rejected his offer to form an alliance ahead of the elections.

In Germany, the ruling coalition was also routed in Sunday’s EU poll, with Chancellor Olaf Scholz rejecting calls for early polls in his own country as well.

All three partners in the Berlin coalition were overtaken by the far-right Alternative for Germany (AfD), which came in second behind the conservative CDU-CSU opposition.

Ultraconservative and nationalist parties also won or made significant gains in Austria, Cyprus, Greece and the Netherlands.

Russia hailed the far-right parties’ gain across the continent. Kremlin spokesperson Dmitry Peskov said they would soon “step on the heels” of Ukraine’s supporters in the European parliament.

Source:Financial Times

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Samantha Luan

Economic

Central Bank

Forex

Australian Dollar is trading broadly lower today, primarily due to selloff in stocks in Hong Kong and China as markets reopened after holiday. This downward pressure is compounded by the decline in Australian business confidence, which turned negative. ANZ has become the first of the big four banks to push its forecast for RBA next rate cut from November this year to February 2025. However, this adjustment has provided little immediate support for Aussie .

Japanese Yen is also experiencing selling pressure, making it the second weakest currency for the day at this point. Japanese Finance Minister Shunichi Suzuki did not make any new comments about Yen's recent depreciation. Nevertheless his remarks last Friday emphasized that any foreign exchange intervention would depend on necessity and effectiveness. Investors are now closely watching the upcoming BoJ meeting, with speculation that the central bank might start tapering its bond purchases.

Meanwhile, Euro is making a modest recovery from yesterday's selloff but remains the weakest performer for the week. Euro's rebound is limited, indicating persistent concerns about the region's political uncertainty. In contrast, British Pound is showing mild strength as markets anticipate upcoming job data.

Dollar is holding onto some of its recent gains, though it lacks the momentum for a significant rally. Market participants are cautious, likely waiting for tomorrow's US. CPI data release and FOMC rate decision, along with the updated dot plot, which will provide clearer guidance on Fed's policy easing path.

Technically, GBP/CHF stabilized after dipping to 1.1360 last week but lacked momentum for recovery. Risk will stay on the downside as long as 1.1480 minor resistance holds. Below 1.1360 will target 38.2% retracement of 1.0634 to 1.1675 at 1.1277 and below. But strong support should be seen around 1.1167 (50% retracement at 1.1155) to bring rebound, at least on first attempt.

Aussie Down on Risk Sentiment and Business Confidence, Yen Also Soft_1

In Asia, at the time of writing, Nikkei is up 0.36%. Hong Kong HSI is down -1.66%. China Shanghai SSE is down -1.15%. Singapore Strait Times is down -0.24%. Japan 10-year JGB yield is down -0.016 at 1.023. Overnight, DOW rose 0.18%. S&P 500 rose 0.26%. NASDAQ rose 0.35%. 10-year yield rose 0.039 to 4.469.

ECB's Lagarde: No linear path for interest rate cuts

In a joint interview with four European newspapers, ECB President Christine Lagarde dismissed the notion that last week's quarter-point rate cut would be the start of a series of similar moves. Lagarde made it clear that "interest rates will not necessarily move downward in a straightforward manner."

"We are not following a pre-determined path," she explained, noting that "there could be periods where we leave interest rates unchanged."

When asked if rates could remain unchanged for multiple meetings, Lagarde said, "It's possible. We need to observe how labor costs evolve and ensure that earnings continue to absorb the recent increases."

Lagarde emphasized ECB's ongoing efforts to control inflation, stating, "We are still in tightening territory and will continue as long as necessary to bring inflation back to 2 percent."

Australia's NAB business confidence returns to negative, inflation pressures re-emerge

Australia's NAB Business Confidence fell from 2 to -3 in May, returning to negative territory. Business conditions also saw a slight decline, dropping from 7 to 6. Specifically, trading conditions decreased from 13 to 10, and profitability conditions fell from 6 to 3. However, employment conditions improved, rising from 2 to 5.

NAB Chief Economist Alan Oster noted pointed out that forward orders are particularly weak in retail, wholesale, and construction sectors, indicating potential challenges ahead. Despite a slowdown in activity, capacity utilization remains above average, suggesting that the "process of bringing supply and demand back into balance remains incomplete".

Inflationary pressures are re-emerging, with labor cost growth increasing to 2.3% on a quarterly basis, up from 1.5% in April. Purchase cost growth also rose to 1.9%, compared to 1.3% previously. Overall product price growth climbed to 1.1%, up from 0.8%, with retail price growth increasing to 1.6% from 1.0%, and recreation and personal services prices edging up to 1.0% from 0.9%.

Oster concluded that the data presents a "mixed" picture for RBA. There are clear signs of growth challenges, yet inflationary pressures remain a concern. "We expect the RBA to keep rates on hold for some time yet as they navigate through these contrasting risks."

Looking ahead

UK job data is the main focus in European session. Later in the day, US will release NFIB business optimism index. Canada will publish building permits.

AUD/USD Daily Report

Intraday bias in AUD/USD remains neutral at this point. On the upside, firm break of 0.6713 will resume whole rise from 0.6361 to 0.6870 resistance next. However, sustained break of 0.6578 cluster support (38.2% retracement of 0.6361 to 0.6713 at 0.6579) will dampen this bullish view, and bring deeper fall to 61.8% retracement at 0.6495.

Aussie Down on Risk Sentiment and Business Confidence, Yen Also Soft_2

In the bigger picture, price actions from 0.6169 (2022 low) are seen as a medium term corrective pattern to the down trend from 0.8006 (2021 high). Fall from 0.7156 (2023 high) is seen as the second leg, which could have completed at 0.6269 already. Rise from there is seen as the third leg which is now trying to resume through 0.6870 resistance.

Source: ActionForex

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Samantha Luan

Economic

Cryptocurrency

US spot Bitcoin exchange-traded funds (ETFs) have seen their first outflows after a 19-day streak of inflows, according to data from HODL15Capital.

On Monday, the ETFs experienced approximately $65 million in outflows, with Grayscale Bitcoin Trust (GBTC) reporting nearly $40 million in withdrawals.

Fidelity Wise Origin Bitcoin Fund (FBTC) faced outflows of $3 million. Invesco Galaxy Bitcoin ETF (BTCO) saw a substantial $20.5 million leave its fund. Valkyrie Bitcoin Fund (BRRR) reported nearly $16 million in outflows.

In contrast, Bitwise Bitcoin ETF (BITB) saw almost $8 million in net inflows while BlackRock’s iShares Bitcoin Trust (IBIT) recorded around $6 million in inflows.

Other funds, including ARK 21Shares Bitcoin ETF (ARKB), Franklin Templeton Bitcoin ETF (EZBC), VanEck Bitcoin Trust (HODL), and WisdomTree Physical Bitcoin (BTCW), reported no activity in terms of inflows or outflows during the day’s trading session.

US Bitcoin funds have been active buyers, accumulating approximately 25,700 BTC in the first week of June alone. IBIT remains the largest Bitcoin ETF globally, with over 304,000 BTC under management, while GBTC holds the second position with over 284,000 BTC, valued at $19.7 billion.

US economic sentiment and anticipation of the Federal Reserve’s (Fed) monetary policy may have influenced Monday’s ETF flows.

All eyes are on the Consumer Price Index (CPI) report and the Federal Open Market Committee (FOMC) meeting, both scheduled for Wednesday, June 12. CPI inflation is estimated at 3.4% and core CPI at 3.5%.

Investors also closely monitor the Fed’s interest rate decision. The CME FedWatch Tool indicates that the market highly expects the Fed to maintain rates between 525 and 550 basis points.

Upcoming economic events could also impact Bitcoin’s price dynamics. As reported by Crypto Briefing, Bitcoin’s perpetual futures markets have seen elevated funding rates, indicating a premium for long positions and a potential correction for spot prices following the FOMC meeting.

According to CoinGecko’s data, Bitcoin is trading at around $68,300 at press time, down almost 2% over the past 24 hours.

Source:Crypto Briefing

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Cohen

Economic

Shares connected to Chinese electric vehicle makers slumped as traders awaited the European Commission’s decision of provisional duties expected this week, while tourism-related shares dropped amid weak holiday travel demand during the recent Dragon Boat Festival holiday. The property sector failed to rally even after the State Council on Friday signaled stronger support for the sector.

“The Hang Seng Index remains weak, with market participants wanting to see more evidence of a recovery trend ahead, but incoming data has been more mixed than assuring,” Jun Rong Yeap, a market strategist at IG Asia Pte, wrote in a client note. “Eyes will be on China’s inflation data this week, where positive consumer price growth may be on watch to reflect some stabilisation in domestic demand.”

Treasuries crept higher in Asia, while the dollar was little changed. Australia’s 10-year bond yield jumped, mainly catching up with Friday’s move in Treasuries as traders pushed out their timeline for Fed interest-rate cuts.

Australian business confidence turned negative and conditions slipped to below-average levels, suggesting elevated interest rates and the worsening consumer outlook are weighing on the corporate sector.

Fed Decision

Wall Street’s most-prominent trading desks from JPMorgan Chase & Co. to Citigroup Inc. are urging investors to prepare for a potential stock-market jolt after US consumer price data and the Fed rate decision both due Wednesday.

The Fed is widely expected to keep borrowing costs on hold, but there’s less certainty on officials’ rate projections. A 41% plurality of economists expect policymakers to signal two cuts in their “dot plot” while an equal number expect the forecasts to show just one or no cuts at all.

“The interest-rate guessing game goes on,” said Chris Larkin at E*Trade from Morgan Stanley. “Even the friendliest inflation numbers probably won’t push the Fed to act any sooner than September.”

Investors are also gearing up for a Bank of Japan policy decision Friday. The BOJ is expected to discuss cutting bond purchases at the gathering, with some economists predicting the central bank will also lay the groundwork for raising rates next month.

In commodities, oil pushed higher following its biggest gain since March, ahead of an OPEC report that will provide a snapshot on the market outlook. Gold retreated after gaining on Monday as traders look to this week’s US central bank meeting for more clues on when it may pivot to monetary easing.

The S&P 500 rose 0.3% Monday to close at a fresh record high. Nvidia Corp. began trading after a 10-for-one stock split. GameStop Corp. slumped 12%.

Apple Inc. sank even after unveiling new artificial-intelligence features. Apple’s suppliers dropped after Apple’s latest artificial ingelligence platform was seen disappointing with limited surprises. Billionaire Elon Musk said he would ban Apple devices from his companies if OpenAI’s artificial intelligence software is integrated at the operating system level, calling the tie-up a security risk.

European shares slid Monday after French President Emmanuel Macron called a legislative vote in the wake of a crushing defeat in European Parliament elections. Yields on France’s 10-year bonds climbed to their highest this year, while the nation’s top banks tumbled.

“The release of a new ‘dot plot’ outlining Fed projections for the path of rates will be the top focus,” said Jason Pride and Michael Reynolds at Glenmede. “For fixed-income investors, the Fed’s more patient higher-for-longer approach is likely to keep bond yields elevated as inflationary pressures remain.”

More than 60% of respondents in the latest MLIV Pulse survey expect US stocks to outperform Treasuries on a volatility-adjusted basis next month. That reading has been higher only three times in the history of the survey going back to August 2022.

In corporate news, developer Dexin China Holdings gets liquidation order from a Hong Kong court adding to a growing number of legal victories for creditors involving overdue debt.

Source：Bloomberg

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Alex

Central Bank

Economic

The European Central Bank must stay cautious, and last week’s cut in borrowing costs won’t necessarily be followed by further rapid moves, according to President Christine Lagarde.

“We’ve made the appropriate decision, but it doesn’t mean interest rates are on a linear declining path,” she said in an interview with leading European newspapers. “There might be periods where we hold rates again.”

Euro-zone borrowing costs aren’t on a predetermined trajectory, the president reiterated.

“At every step of the way, not only when we have new projections, we will reassess,” she said according to a pre-release by Handelsblatt on Monday. The interview was also published in Expansion, Il Sole 24 Ore and Les Echos.

Lagarde Says ECB Cut Doesn’t Put Rate on ‘Linear Declining Path’_1

The ECB delivered a widely anticipated rate reduction last Thursday, a move that jarred both with its higher projections for inflation and with a backdrop of stronger-than-expected wage growth and consumer prices. Investors were left querying where policy is headed next.

Inflation in the 20-nation bloc accelerated by more than anticipated to 2.6% in May, with a surge in services prices and a strengthening of underlying pressures being even more worrisome. Wage growth in the first quarter was also much higher than expected.

In the interview, Lagarde said that some recent numbers “could have been better.” But she added that “we felt that disinflation was sufficiently advanced and would continue to progress over the next 18 months, and so we could cut rates.” The ECB expects inflation to reach 2% again toward the end of next year.

Austria’s Robert Holzmann opposed last week’s decision, while other officials in recent days at least urged caution, further dampening expectations on subsequent rapid cuts. Ireland’s Gabriel Makhlouf last week said policymakers don’t know “how fast we’re going to carry on, or if at all.”

Bundesbank President Joachim Nagel said on Monday that the ECB may not lower borrowing costs again for a while as it watches to see how quickly price growth recedes to target.

“We’re not declaring victory yet,” Lagarde said in Monday’s interview, highlighting wages, unit profits and productivity as important drivers of services inflation — “which is our weak spot.” On the real economy, she argued that “the growth outlook has improved” and that “the economy is going to strengthen.”

Asked why the ECB’s policy statement last week didn’t refer to reducing the current level of monetary-policy restriction, she responded that “removing the easing bias was dictated by our wanting to be data dependent, with a real understanding of where we are heading and when we will reach 2%.” Given high uncertainty, “forward guidance is not going to help us,” Lagarde said.

The president also said that the natural interest rate “is likely to be higher than before the pandemic, but we are currently still far away from it.” Therefore “it’s pointless to start discussing that now,” she said.

Source:Bloomberg

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Samantha Luan

Economic

Commodity

At 14:12 ET (18:12 GMT), Brent oil futures rose 2.3% to $81.49 a barrel, while West Texas Intermediate crude futures rose 2.7% to $77.58 a barrel.

Summer demand hopes front and center

Worries about supply outstripping demand pushed bearish bets on crude close to record highs, UBS said, citing a recent Commitment of Traders reportr, though added that positioning was overly pessimistic as crude supplies are likely drop over the summer months.

The Commitment of Traders, a gauge of how traders are positioned, for the week ended on 4 June showed that bet on oil prices falling of 38.5 million barrels were added, while about 70.5 million barrels bullish bets were closed, pushing short positioning close to record highs.

"We think this is overly pessimistic," UBS said, forecasting oil supplies to "likely to point downwards over the coming weeks." as the seasonal pick in crude demand over the summer is underway.

Expectations for a pick up summer demand come just a day ahead of Tuesday's release of OPEC's monthly report, with the cartel scheduled to provide its outlook of annual oil supply and demand.

Fed meeting, inflation data on tap as dollar sags

The dollar curbed some gains, but had little sway on oil prices as cautious trading set in ahead of the Federal Reserve's decision on Wednesday that will likely see the central bank stay pat on interest rates and signal fewer rate cuts for the year.

The Fed is set to meet later this week and is widely expected to keep rates steady. But any signals on rate cuts will be closely watched.

Before the Fed, consumer price index inflation data is also due on Wednesday, and is likely to factor into the central bank’s outlook.

A weaker dollar boosts oil demand by making the commodity more attractive to international buyers.

Goldman sticks to tight range

Still, despite the numerous factors impacting the crude market, Goldman Sachs (NYSE:GS) sticks to a $75-$90 a barrel range for Brent this year.

"We still see $75/bbl as a floor under Brent. For one thing, physical demand for oil, including from China and the US SPR, tends to rise when prices fall. Second, financial demand is likely to rise substantially if currently very low.

speculative positioning normalizes. Third, US supply will remain price dependent, and OPEC can delay, pause, or reverse its plan to raise production if required to stabilize the market. Moreover, OPEC’s agreement on new production baselines through 2026 signals stronger cohesion, further reducing the likelihood of much lower prices," the bank said, in a note dated June 9.

Turning to the $90 a barrel ceiling, "OPEC has announced a data-dependent plan to gradually unwind voluntary production cuts from Q4 if the market tightens."