Gold safe-haven demand decreases, but gold prices remain flat

Wednesday (May 8), morning trading in Asia,Spot goldThe price of gold fell on Tuesday after rising in the previous session. The Israeli army seized the Rafah port to block the aid route. The United States still believes it can break the ceasefire deadlock and suppress safe-haven demand for gold, but the price of gold fell little as traders remained concernedThe Federal Reserve's interest rate cut prospects。

Spot gold fell 0.43% on Tuesday to $2313.81 an ounce. U.S. gold futures closed 0.3% lower at $2324.2 an ounce.

(Daily chart of spot gold)

Jim Wyckoff, senior market analyst at Kitco, said: "What we saw in the gold and silver markets on Tuesday was a routine price correction following Monday's rally, and that's not unexpected."

Traders in the federal funds futures market see a roughly two-thirds chance of the Fed cutting rates in September, according to the CME's Fed Watch Tool.

In a new article published on Tuesday, Minneapolis Fed President Kashkari said the strength of the U.S. housing market and the potential stagnation of inflation progress mean monetary policy may not be as tight as Fed officials believe.

Asian central banks have accumulated gold for the 18th straight month, adding 60,000 troy ounces to their reserves despite high prices, data showed.

Citing a "lack of progress" on inflation, Morgan Stanley economists pushed back expectations for the Fed's first rate cut from July to September. They still expect three 25 basis point cuts this year. Economists such as Ellen Zentner, Sam Coffin and Diego Anzoategui said in a report that the lack of progress since the start of the year meant it would take longer for Fed policymakers to be convinced that inflation was falling steadily towards its 2 per cent target. They expected the core three- and six-month annualised PCE to be "near or below" 2 per cent by the end of the year, in which case it would be "too late" to wait until after September to cut rates.

Heraeus analysts said gold prices continue to face headwinds from rising bond yields, while silver will benefit from the global rollout of 5G in the coming years. The Federal Reserve has confirmed the market's assessment of the economy, analysts wrote in their latest precious metals report.

"At Wednesday's FOMC meeting, Federal Reserve Chairperson Jerome Powell dismissed the possibility of a rate hike in June, but reiterated his commitment to prioritize inflation containment in light of the lack of progress towards the 2 per cent target rate," they said. "While the dollar remains strong, it has fallen over the past two weeks. However, after the meeting, the likelihood of a rate cut before the end of the year gradually increased."

They also pointed to unprecedented purchases by central banks in Quarter 1. "Global central banks added 289.7 tonnes to their gold reserves, a record for Quarter 1," they said. "Western ETF investors, particularly European funds, remain notably absent from the gold market, having reduced their ETF holdings by about 30 tonnes in April."

The Israeli army seized the Rafah port and blocked the aid route, but the United States still believes it can break the ceasefire deadlock

The United States said the Gaza cease-fire talks should bridge the differences between Israel and Hamas, while Israeli forces seized the main border crossing at Rafah on Tuesday, closing a key aid channel.

Hamas official Osama Hamdan, speaking to reporters in Beirut, warned that a ceasefire could not be reached if Israel continued its military aggression in Rafah.

John Kirby, the White House spokesperson, said Hamas on Monday proposed amendments to Israel's proposal to end the standoff. He said the revised text of the agreement showed that the remaining gap between the two sides "can absolutely be bridged." He declined to specify what, though. Israel said on Monday that the three-phase proposal that Hamas had agreed to was unacceptable.

Kirby said mediators from Qatar and Egypt, as well as U.S. and Israeli officials, were in Cairo for talks. Hamas also said its delegation was in Cairo.

Israel seized the Rafah crossing despite weeks of calls from the United States, other countries and international bodies to stop an aggressive Israeli assault on the area, and Israeli military video showed a convoy of tanks crossing the Rafah crossing between Gaza and Egypt, with the Israeli flag raised on the Gaza side.

Israeli Prime Minister Benjamin Netanyahu said the seizure of the port was a "very important step" toward Israel's stated goal of destroying Hamas' military capabilities.

The United Nations and other international aid agencies say the closure of two crossings into southern Gaza - Rafah and the Israeli-controlled Kerem Shalom - has cut off Gaza from outside aid, with few shops inside.

Egyptian Red Crescent sources said transport had stopped altogether. Philippe Lazzarini, head of the UN Relief and Works Agency for Palestine Refugees in the Near East (UNRWA), said on X: "These crossings are life infras... They must be reopened immediately."

The White House said it had been informed that the Kerim Shalom crossing would reopen on Wednesday, when fuel deliveries through Rafah would also resume

"A full-scale attack on Rafah would undoubtedly be a human catastrophe," said Mr. Guterres, the UN secretary-general, who called on Israel and Hamas to work towards a ceasefire.

Separately, four sources said on Tuesday that the United States had delayed the delivery of some weapons to Israel by two weeks.

The White House and Pentagon declined to comment, but it would be the first time the Biden administration has delayed sending weapons to Israel since the war began.

Federal Reserve's Kashkari: Tightening monetary policy is not restricting economic development as expected

In a new article published on Tuesday, Minneapolis Fed President Kashkari said the strength of the U.S. housing market and the potential stagnation of inflation progress mean monetary policy may not be as tight as Fed officials believe.

Misestimating the impact of current policies on the economy "could explain the range of data we observed", particularly in housing, but also in the broader context of sustained economic growth, Kashkari wrote, particularly in housing, which has proved to be "more resilient to tightening than has generally been the case in the past", depriving the Fed of a key channel through which the effects of high interest rates are typically felt.

Mr. Kashkari said there could be a variety of reasons for this, ranging directly from a shortage of housing supply combined with rising demand to a more difficult-to-diagnose shift in the "neutral" interest rate, which means Fed policy is not constraining the economy as expected.

In any case, that means the Fed must determine whether inflation is really stalling above its target, or whether price pressures will eventually continue to ease - a key issue that could force policymakers to decide whether it is worth risking a recession by adopting tighter monetary policy in order to squeeze a few tenths of a percentage point out of the pace of price increases.

"The question we now face is whether the process of falling inflation is actually continuing, just taking longer than expected, or whether inflation has stabilized at around 3 per cent, suggesting that there is more work to be done to achieve our dual mandate objectives," Mr. Kashkari wrote.

Mr. Kashkari did not give an answer or update his view on the right path for monetary policy. Before the Fed's last meeting, he had said that disappointing inflation data and continued growth might mean the Fed would not cut rates at all this year, but that further increases in the benchmark policy rate were "not a possible scenario".

Kashkari suggests another possibility: for a variety of reasons, perhaps even temporarily, the "neutral" interest rate has risen, implying that the economy will remain stronger than in the past under the same monetary policy.

"With inflation moving sideways in the most recent quarter, this raises questions about how restrictive policy really is," Kashkari wrote. "Uncertainty about the neutral rate now poses a challenge for policymakers."

Affected by Kashkari's speech, the dollar index was relatively strong on Tuesday, closing at 105.37, up about 0.27%, rising for the second consecutive session, which had some suppressing effect on gold prices.

No important economic data was released this trading day, and investors continued to monitor the remarks of other Federal Reserve officials.

At 07:50 Beijing time, spot gold was quoted at $2314.91/ounce.