After experiencing a sharp decline on Monday, gold prices slightly rebounded on May 13, with spot gold closing at $3,249.86 per ounce, an increase of 0.47%. This rebound was mainly supported by buying at low levels and the U.S. April CPI data which came in lower than market expectations, fueling speculations of a Federal Reserve rate cut. Additionally, the U.S. dollar index retreated from its recent one-month high, and ongoing geopolitical tensions provided upward momentum for gold prices. In the early Asian market on Wednesday (May 14), spot gold showed slight fluctuations, trading around $3,255 per ounce.
Buying on Dips: The "Safety Net" Effect of Gold
When gold prices fall, a strong wave of buying on dips always emerges, and this phenomenon has appeared once again. After gold prices fell to a low of $3,207.30 per ounce on Monday, a large influx of buying quickly supported the gold price rebound. This highlights investors' high confidence in gold as the "ultimate safe-haven asset." Bart Melek, head of commodity strategy at TD Securities, pointed out that while the U.S.-China trade agreement once triggered a gold price correction, the uncertainty surrounding global economic prospects continues to provide solid support for gold.
Inflation Data: The Weathervane of Federal Reserve Policy
Data released by the U.S. Department of Labor on Tuesday showed that the consumer price index (CPI) in April rose by only 0.2% month-on-month, below the market expectation of 0.3%. This modest inflation report injected new vitality into gold prices. Jim Wyckoff, senior analyst at Kitco Metals, believes that despite mild inflationary pressures, the data may prompt the Federal Reserve to maintain interest rate cut expectations, with the market widely anticipating the Fed to resume rate cuts in September. Notably, tariff effects may raise inflation levels in the coming months, prompting investors to use gold as a tool to hedge against inflation.
Geopolitics: The Ever-burning Fire of Risk Aversion
Geopolitical uncertainties, especially the Russia-Ukraine situation and the India-Pakistan conflict, continue to support gold. Although a temporary ceasefire exists between India and Pakistan, tensions have not fundamentally changed. Face-to-face talks between Ukraine and Russia remain full of uncertainties, and these geopolitical risks keep the demand for gold as a safe-haven asset robust. With the potential deep involvement of the U.S. in the Russia-Ukraine talks, geopolitical risk premiums are being recalibrated, further pushing gold prices upward.
The U.S. Dollar's Performance: Gold's Mirrored Dance Partner
On Tuesday, the U.S. dollar index fell by 0.8%, closing at 100.98, in stark contrast to the rise in gold prices. The negative correlation between gold prices and the U.S. dollar was reaffirmed. Despite some easing in U.S.-China trade relations, the dollar remains nearly 3% lower than when tariffs were announced by President Trump in early April. Major brokerages such as Goldman Sachs and JPMorgan have adjusted their expectations for Federal Reserve policy, now forecasting the first rate cut may be delayed until September, with an anticipated 51 basis point decrease for the year. This shift in monetary policy expectations is reshaping the traditional relationship between gold and the dollar.
Looking Ahead: Gold Faces Triple Challenges
Looking forward, gold faces three key factors: first is the progress of U.S.-China trade negotiations, although a 90-day truce agreement has been reached, tariff policies are not fully resolved; second is the direction of Federal Reserve monetary policy, with moderate inflation data providing the conditions for a rate cut; and lastly, global geopolitical risk, particularly the evolution of Russia-Ukraine talks and the India-Pakistan conflict. Brian Jacobsen, chief economist at Annex Wealth Management, noted that the possibility of tariff reduction would help the Federal Reserve proceed with planned rate cuts.
The economic data for the current trading day is relatively limited. U.S. Secretary of State Rubio will attend the NATO foreign ministers' informal meeting from May 14 to 16, discussing security priorities such as increasing defense investments and ending the Russia-Ukraine war. Additionally, several Federal Reserve officials will deliver speeches, and investors need to closely monitor the release of this information.
