Monthly gold update

Gold: Spotlight on June’s performance

The gold price was little changed month-on-month, losing 0.02% in June to end the month at US$2,327¹. Macro factors were the key drivers; the largest move in the gold price intra-month was following the non-farm payrolls print. Data published in June also saw no change in the People’s Bank of China (PBOC) gold reserves for May, the first time for 18 months it had not increased.

During June gold effectively traded sideways; the gold price ended the month where it started at $2,327. It made an intra-month high of $2,376 before falling to its intra-month low of $2,294 on non-farm payroll data, discussed in the next section. Gold recovered into month-end as the USD fell from a two-month high.

The sideways move of gold was perhaps surprising given data was published showing the PBOC did not add to its gold reserves in May – the first monthly pause in buying since November 2022. Central banks purchasing gold has been a key support to the commodity as the ETF demand segment has been selling gold stocks for almost 24 months consecutively. It could be that the relatively high prices of gold have put a break on the PBOC’s purchasing programme. With the assumption that ETF purchases are more motivated by the monetary cycle, and therefore should be seeing their buying signal soon on rate cuts, the question is will they be deterred by the relatively high prices of gold or inspired by the potential upside?

Year-to-date the gold price has increased 12.8%.

Keep an eye on … macro data motivating ETF purchasers.

US 10-year real yields ended June at 2.11%, higher than the 2.06% at the start of the month. Real yields peaked at 2.17% as June’s non-farm payroll data was comfortably head and shoulders above top estimates. This was even as prior months’ estimates were revised down and the unemployment rate was higher at 4.0%. Non-farm payrolls and the unemployment rate are calculated from different sources, meaning that the unemployment rate could be a truer reflection of reality and the labour market is softening, increasing the likelihood of a nearer-term rate cut.

The prospect of a portending rate cut was also increased by the slowing rate of increase in the PCE reading (headline and core), the Fed’s preferred measure of inflation. By the end of the month markets were seeing a higher likelihood that the Fed would make the first rate cut in September and come the end of the year the Fed will have made two rate cuts – up from one at the start of the month.

Keep an eye on … confirmation of softening in the labour market.

Given the additional rate cut the market has priced in for the Fed, there was a slight pullback by USD into month-end, but the overall trend of the Dollar was up, appreciating 2.6% as measured by the DXY index. The response of gold to the stronger Dollar was reasonably passive.

During the month the ECB made its first rate cut of the cycle. As like the Fed, and the Bank of England for that matter, the markets priced in an additional rate cut by the end of 2024. In Japan, where the central bank is expected to start raising rates, the market became less optimistic that three rate rises would be managed by year-end and reduced forecasts to two. All of these moves maintained USD’s relative advantage.

Keep an eye on … a change in the comparative rate moves relative to the Dollar – fewer changes for the ECB or Bank of England, more for the Bank of Japan – to weaken USD.