Everbright Futures: Core PCE fell as expected, gold prices may fluctuate in the short term

Last week, the COMEX gold price rose by 0.09% to $2,336.90 per ounce, and the main contract of Shanghai Gold fell by 1.47% to 551.52 yuan per gram.

Review the trend of Shanghai Gold last week. Affected by the higher-than-expected Markit June manufacturing PMI, the main contract of Shanghai Gold weakened sharply at the beginning of last week. Then the Fed governor made another "hawkish statement", which continued the weakness of the market. Specifically, Bowman believes that there will be no interest rate cut in 2024 and the time of interest rate cut will be postponed to 2025. What shocked the market even more was that Bowman even said that if the progress of inflation decline stagnates, she is still willing to support interest rate hikes. At a time when Switzerland, Sweden and other countries have successively cut interest rates and the market expects that a global interest rate cut wave may start, this extremely hawkish statement has greatly damaged market sentiment. In the second half of the week, boosted by weak data such as the total number of new home sales in the United States in May, although the gold price rebounded slightly, the overall performance was still weak, closing down more than 1% on a weekly basis.

Review the heavy data last week. Last Friday, the inflation index favored by the Federal Reserve was released. From the data, the annual rate of the PCE price index in May landed as expected, falling from the previous value of 2.75% to 2.6%. The core PCE, which excludes volatile food and energy, also fell as expected, from the previous value of 0.3% to 0.1%, the smallest increase in the past six months. The annual rate of the core PCE price index in May also fell from the previous value of 2.8% to 2.6% as expected, which is the lowest level since March 2021. After the core PCE landed, the US dollar index fell by more than 1,000 basis points in 5 minutes. The decline of the core PCE this time, coupled with the cooling of the previous CPI and PPI, may mean that the inflation decline process that had stagnated in the first quarter will be revitalized, and the market's confidence in the continued cooling of inflation will increase. If the inflation trend in May is continued in June, July and August, a rate cut in September may be expected. CME "Fed Watch" data shows that the market has bet on the probability of the Fed cutting interest rates in September by nearly 70%.

Looking ahead, gold prices will regain momentum thanks to the expected decline in core PCE, but due to the marginal improvement in economic data, gold prices may fluctuate at the beginning of this week. Specifically, the recent US economic data has been weak, but the Chicago PMI in June exceeded expectations (expected value 40) last Friday, rising sharply from the previous value of 35.4 to 47.4. In addition, the final value of the University of Michigan Consumer Confidence Index in June also showed that consumer confidence has improved, with the index rising from the expected value of 65.8 to 68.2. The rebound in PMI data and consumer confidence index has caused the market to worry that the US economy may still be resilient, and capital sentiment is unlikely to improve significantly, and the upward trend of gold prices may be hindered.

For the recent trend of gold prices, on the one hand, we should pay attention to the changes in market expectations of interest rate cuts, and the impact of the speeches of Federal Reserve officials, especially Federal Reserve Chairman Powell, on capital sentiment this week; on the other hand, we should pay attention to the evolution of the geopolitical situation, especially the armed conflict between Israel and Lebanon. If the war escalates again, the demand for safe-haven may rise again.

It is worth noting that although the number of initial jobless claims in the United States fell more than expected in the week ending June 22, the data had previously risen more than expected for four consecutive weeks, and the job market may still be sluggish. We should not be overly pessimistic about the short-term performance of gold prices, and pay attention to the performance of non-farm data this week. The market expects that the number of new non-farm payrolls in the United States in June will fall from 272,000 to 190,000 after seasonal adjustment. If the data falls as expected, gold prices may gain momentum again.