Gold News

'Uncertainty Supports' Gold Price as Central Banks Weigh Inflation, Growth, Politics

The PRICE of GOLD held little changed against all major currencies on Tuesday, trading in London at $2315 per Troy ounce as longer-term interest rates eased back despite the central bank of Australia warning about inflation, and global stock markets rose following New York's 30th new all-time closing high of 2024 to date.
The price of gold in US Dollars set 18 new record London 3pm benchmarks inside 11 weeks to 21st May, peaking at $2427 with its strongest run since summer 2011's peak amid the US debt downgrade, Euro currency crisis and worst English rioting in over 200 years.
Here in 2024, in contrast, the S&P500 index of US equities also set a new all-time high as gold peaked in late-May, and has since gained 2.8% while investment-grade bullion has dropped 4.7%.
Chart of S&P500 index vs. Dollar gold price, last 5 years. Source: Google Finance
"Nerves over potential geopolitical risk after the European elections are likely to prove supportive for gold," says bullion-market analyst Rhona O'Connell at brokerage StoneX, noting the uncertainty hitting French bonds and shares last week, "while fresh sanctions on Chinese products are more peripheral but also potentially supportive."
"Uncertainty is increasingly driving financial markets," agrees Nicky Shiels at Swiss bullion refining and finance group MKS Pamp after last week "wiped $210bn from the French stock market [and] European bonds saw their worst week since the 2011 European crisis."
Gold traders and other investors "will [continue to] focus on politics [but] central-bank decisions will also be key following the Fed's dovish hold."
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Following June's rate cut in Canada and in the Eurozone, "Inflation remains above target and is proving persistent," said the Reserve Bank of Australia today, holding Aussie Dollar interest rates at a 13-year high of 4.35% per annum for the world's 13th largest economy and using the word "uncertainty" eight times in its 837-word policy statement.
"Inflation" appears 24 times, "economy" just seven.
"We need a lot to go our way if we're going to bring inflation back down to the 2-3 per cent target range," said RBA Governor Michele Bullock at Tuesday's post-decision press conference in Sydney, revealing that the policy committee discussed a possible rate rise and did not discuss any cuts.
Australia's cost of living index rose 3.6% per year in April, its fastest pace since November.
First-quarter GDP in contrast showed the weakest economic growth since the Covid Crash of 2020 at just 1.1% per year.
Rising 23.7% from this time a year ago, the gold price in Australian Dollars today fell back below A$3500 per Troy ounce, a new record high when first reached at the start of April but almost A$300 below that month's subsequent peak.
Gold priced in the Brazilian Real meantime edged up towards April's all-time highs as the currency fell to new 18-month lows on the FX market ahead of tomorrow's June monetary policy decision for the world's No.8 economy and major commodity.
The Banco Central has cut the Selic interest rate by 3.25 points over the past 10 months from 2022-2023's multi-year high of 13.75%.
But "the interest rate is absurd, it must be lowered. Inflation is totally under control," said left-wing President Luiz Inácio Lula da Silva yesterday, re-elected at the start of 2023 and repeatedly attacking Roberto Campos Neto – chosen to head Brazil's central bank by Lula's right-wing predecessor Jair Bolsonaro, and now actively backing moves to give the BC further political independence – since then.
While the media frequently mentions Brazil's fiscal deficit, Lula claims, "no one talks about high interest rates in a country with 4% inflation. On the contrary, they celebrate with the central bank chief...[They] must be profiting from the interest rate."
With the US Federal Reserve holding Dollar interest rates unchanged last week, new data Tuesday defied analyst forecasts for May's retail sales in the world's largest economy, slipping 0.1% for the 2nd month running excluding autos.
But economic sentiment across the 20-nation Eurozone has surged this month, the ZEW research center said, reaching the most positive since July 2021 and blowing past analyst expectations following the European Central Bank's cut to rates a fortnight ago.
"The right kind of monetary policy for a highly regulated, anaemic economy in an ageing Europe looks different from that of the United States, which is more focused on growth and less on redistribution," says ZEW economist Friedrich Heinemann.
Euro gold prices today held tight around €2160 per Troy ounce, cutting last week's 2.3% rebound by one third.
UK Pound gold prices held firmer at £1825 ahead of Thursday's Bank of England interest-rate decision, widely forecast to bring no change but a 'dovish' turn of phrase following what is expected to be softer inflation data tomorrow.

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver, platinum and palladium market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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