Inflation Expectations Rise Along with Hawkish Fed, Wall Street Generally Bears Gold Prices

Spot gold closed lower this week, ending at $4509.40 per ounce on Friday, with a total decline of about 1% for the week. Federal Reserve Governor Waller warned on Friday that an energy shock caused by an Iran war could intensify inflationary pressures, and if inflation does not fall quickly, the possibility of further rate hikes cannot be ruled out. The market then increased its bets on the Federal Reserve's monetary tightening, and gold prices fell accordingly.

The latest survey from the University of Michigan shows that the consumer sentiment index for May fell from 49.8 in April to 44.8. Expectations for the inflation rate over the next 5 to 10 years rose to 3.9%, higher than the 3.5% in April, marking the highest level in seven months. The PPI and CPI data released last week also showed a significant increase, with PPI reaching a multi-year high, pushing back expectations for rate cuts and bringing the discussion of rate hikes back to the surface. Since the outbreak of the Iran war at the end of February, the price of gold has fallen by about 15%.

Analysts are generally cautious about short-term gold prices. Chekan, President of Asset Strategies International, pointed out that the fragile ceasefire between the US and Iran shows signs of breaking, with ongoing nuclear disagreements deepening, which is unfavorable for gold. Grady, President of Phoenix Futures and Options, believes that unless there is a substantial breakthrough in the Middle East situation, gold prices will maintain a range-bound trend in the short term. Vey from Walsh Trading added that a strong stock market makes it difficult for fund managers to justify increasing their holdings of gold.

The weekly survey results from Kitco confirmed the above pessimistic sentiment. Among the 13 analysts interviewed, 8 were bearish, only 2 were bullish, and 3 expected consolidation. The market will focus on the revised US Q1 GDP and core PCE data to be released on Thursday next week, both of which could have a direct impact on Federal Reserve policy expectations and the direction of gold prices.