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Various Positive Sentiments Drive Gold Prices Strong
Various Positive Sentiments Drive Gold Prices Strong
Wednesday, 15 May 2024

Price Indicator

Product 

Price

% change

GOLDUD

$2,363.17

1.64%

GOLDGR

Rp1,234,100.00

2.00%

XAUUSD

$2,360.50

1.57%

COMEX

$2,005.00

-0.25%

USD/IDR

Rp16,039.00

0.12%

Gold Focus :

  1. ICDX gold price rose 1.64% this week Harga (6/5-10/5)
  2. Expectations of an interest rate cut in September increase

Market Review

Gold prices strengthened to $2,363 per Troy Ounce compared to the previous week due to the impact of rising expectations of interest rate cuts and rising geopolitical tensions.

Expectations of an interest rate cut by the Federal Reserve are increasing, supported by several recently released United States economic data. The statistical figure was 175 thousand, lower than expectations of 315 thousand workers and reduced from last month. The US PMI index in April was 49.4, which means there was a contraction in the sector, while average hourly earnings fell to 0.2% MoM, indicating a decline in the rate of income growth. The release of several American economic data showing weakness in the United States economy has caused market players' expectations regarding the Fed's interest rate cut to rise again. However, Fed officials still have a hawkish tone regarding the central bank's interest rate policy. Fed Governor Michelle Bowman said interest rates could be raised if inflation moved against the central bank's target. Meanwhile, Richmond Fed President Thomas Barkin does not yet have enough information to say inflation is on track. Some of these hawkish comments may limit the rise in gold price.

The upward movement in gold prices was also supported by a decline in US treasury yields. Meanwhile, gold purchases are at a fairly high level. According to data from the World Gold Council (WGC), gold purchases from central banks are at a high level of 15 tons. This figure is in line with previous months, thus keeping the positive trend in demand alive. China's Caixin Services PMI data was also above 50 points in April, which shows the manufacturing sector is still expanding, maintaining hopes of high demand for gold in China even though the country has experienced a recent economic downturn.

On the other hand, signs of ongoing political tensions in the Middle East might boost safe-haven flows and benefit gold prices. Hamas announced its acceptance of the Egypt-Qatar ceasefire plan on Monday. However, Israel rejected the agreement as not fulfilling its “core demands” and continued to attack Rafah in southern Gaza. However, Israel said that it would continue to negotiate.

Market View

Interest Rate Cut Expectations

Market players' expectations of an interest rate cut by the Federal Reserve are increasing after the release of the PPI and CPI in April. The US PPI index showed an increase of 0.5% MoM above expectations of 0.3%. This indicates that inflation in the industrial and manufacturing sectors increased above expectations, indicating that prices of goods will remain high. In addition, the CPI Index grew 0.3% in April, decreasing from the previous month's 0.4%. Meanwhile US CPI data excluding food and energy was released in line with expectations, growing 0.3% MoM in April, but still lower than last month. This negative note is complemented by US retail sales figures showing no growth with an index of 0% in April. Some hotter-than-expected data indicates the weakening state of the United States economy, which could increase the possibility of the Fed cutting interest rates and become a positive sentiment driving gold.

Geophylitics and Gold Demand

Geopolitical tensions are increasingly felt. The Israeli army is still pounding the Gaza region and the opening of a new Russian front in Ukraine, as well as fears of uncontrolled global trade have increased the threat level of geopolitical risks.

Western and US sanctions against Russia, Iran and other developing countries are a factor in the fragmentation of trade alliances along geopolitical lines. The response of investors and central banks is to accumulate Gold. Then, the action of the BRIC countries not to use the US Dollar as a medium for international trade has increased demand for Gold as a substitute. This is the main reason for the soaring demand for gold by non-Western central banks and also the reduction in US dollar reserves.

The level of demand for gold by central banks is still consistently at a fairly high level, as stated by the World Gold Council (WGC). Apart from protecting their assets, this increase in demand also occurred as a result of economic sanctions imposed by western countries on several countries. In addition, there is tension between the BRICS countries and the US Alliance where the BRICS countries are reducing the use of US dollars in international trade and replacing them with gold.

WEEKLY ECONOMIC DATA & EVENTS CALENDAR

Date

Data/Events

Actual

Ekspektasi

Sebelumnya

14-May

US - Fed Chair Powell Speech 

5.5%

5.5%

5.5%

15-May

US - Core Inflation Rate YoY

-

3.7%

3.8%

15-May

US - Retail Sales MoM

-

0.3%

0.6%

Source: ICDX Research

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© Indonesia Commodity & Derivatives Exchange (ICDX)
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