• 2024-06-09

Double blow from China and the USA causes gold to collapse

The price of gold fell below the USD 2,300 mark on Friday afternoon after strong labor market data dashed hopes of earlier Fed rate cuts. As a result, US yields and the dollar rose, putting gold under pressure. The price collapse began earlier in the day, however, when news that China was pausing its gold purchases motivated investors to take profits. This sealed the double blow. The record hunt that took the price of gold to USD 2,450 on May 20 may have come to an abrupt end. Yesterdays red daily candle - the price of gold fell by around USD 100 - certainly does not bode well. 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 Gold price collapses The price of gold ultimately fell below the $2,300 per ounce mark in the wake of the bad news, the sharpest drop in nearly three years, Bloomberg reports. The surprisingly strong US labor market data dashed hopes that the US Federal Reserve would be able to cut interest rates soon. Treasury yields and the dollar rose sharply after the US governments May employment report showed job growth well above expectations and high wages. The price of an ounce of gold fell by as much as 3.7% at one point, the most since August 2021, while silver fell as much as 7%. Other base metals also recorded further declines. The XAUUSD chart below shows the course of gold and the 10-year US yield. Gold: Gold price collapses after China news and US labor market data Gold versus 10-year US yield 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 "Strong labor market data wiped out much of the rate cut expectations that had been building up over the past week," said Ole Hansen, head of commodity strategy at Saxo Bank AS. "This report has finally closed the door for an earlier rate cut as wage growth continues and employment remains robust." More expert statements on the hot labor market data and possible Fed rate cuts in the short video: No quick interest rate turnaround by the Fed Fed members recently said they need more evidence that inflation is moving toward the central bank s 2% target before cutting interest rates. Meanwhile, investors are looking for signs of a soft landing in the economy that would justify rate cuts in the US. Lower borrowing costs usually have a positive effect on interest-free gold - and vice versa. After rising to a record high of around $2,450 an ounce, gold prices have been trading in a fairly narrow range amid uncertainty over the Feds interest rate path, with swap traders no longer fully expecting a rate cut before December. Among non-ferrous metals, copper fell 3.9% to its lowest level since May 2, and zinc posted its biggest one-day decline since October 2022. China pauses gold buying spree Gold prices were already trading lower on Friday morning as data showed that Chinas central bank did not buy gold last month, ending a massive buying spree that spanned 18 months and contributed to the precious metals rise. The Peoples Bank of China had been adding to its reserves since November 2022, leading a flurry of purchases by global central banks amid rising geopolitical tensions. "My first thought is that China - one of the main drivers of the gold rally last year - is far from finished buying gold," said Hansen. The pause only shows that they are wary of the prospect of paying record high gold prices. The PBOCs demand for gold bullion comes as the worlds second-largest economy seeks to diversify its reserves and protect itself against currency devaluation. According to the World Gold Council, purchases by public institutions around the world reached record levels in the first quarter, with China being the largest buyer. Chinas declining appetite for gold There had been signs that Chinese demand was cooling as higher gold prices took their toll. In April, the PBOC bought just 60,000 troy ounces, down from 160,000 ounces in March and 390,000 ounces in February. The countrys imports fell 30% in April from the previous month. The risk for gold bulls is that Chinas insatiable appetite for gold makes the precious metal vulnerable to potential shifts in demand. The recent price reaction "looks a little technical," said Nicholas Frappell, global head of institutional markets at ABC Refinery in Sydney. "It would be surprising if the announcement represented anything other than a pause in the general trend of sustained public sector demand." Spot gold traded at $2,288.53 an ounce at 4:08 p.m. in New York, down 3.7% from the previous close. The S&P/TSX Composite Gold Index fell as much as 6.2%. Silver , platinum and palladium all declined, with silver posting its biggest intraday decline since February 2021. FMW/Bloomberg