Gold Prices Dip 3.49% as China Halts Purchases, Fed Eyed

Key Takeaway

• China's central bank paused its gold buying after 18 months, posing a bearish risk for gold prices.
• Gold prices fell 3.49% to $2,294 after a strong US jobs report shifted rate cut expectations from July to September.
• The market is now focused on the upcoming Federal Reserve meeting for clues on potential rate cuts.

China Pauses Gold Buying

China's central bank, the People's Bank of China (PBOC), did not purchase any gold in the past month, halting an 18-month streak of continuous buying. This pause comes after a significant spree that contributed to gold reaching a record high in May. The PBOC had been increasing its reserves since November 2022, amid rising geopolitical tensions, leading a wave of purchases by central banks globally. In April, the PBOC bought only 60,000 ounces of gold, a sharp decline from 160,000 ounces in March and 390,000 ounces in February. Additionally, China's gold imports in April were down approximately 30% from March levels. Analysts suggest that the slowdown in Chinese gold buying is primarily due to high prices rather than a strategic shift. This pause, however, poses a bearish risk for gold prices in the near term.

Impact of US Jobs Report

Gold prices experienced significant volatility last week, initially rising on expectations of rate cuts but subsequently falling due to a robust US nonfarm payroll report. Spot gold reached $2,387 on Friday, the highest level since May 22, before closing with a loss of 3.49% at $2,294. The metal fell nearly 1.40% over the week. The Dollar Index, which had been weakening on rising Federal Reserve rate cut expectations, surged on Friday, closing with a gain of 0.70% at 104.93. The 10-year US Treasury yields also saw a sharp increase, closing with a gain of 3.28% at 4.43%, although they were still down nearly 1.75% for the week. The strong job report, which showed US employers added 272,000 jobs in May against a forecast of 180,000, shifted traders' rate cut expectations from July to September.

Market Reactions and Outlook

The market is now focused on the upcoming Federal Reserve meeting, with participants looking for clues on potential rate cuts. The Bank of Canada and the European Central Bank (ECB) both cut rates earlier this week, but the ECB has not provided clear guidance for further cuts. US data released last week showed mixed results, with the ISM manufacturing data coming in below forecast, while the ISM services index exceeded expectations. The US nonfarm payrolls report defied weaker-than-expected ADP data, showing a strong labor market despite a slight increase in the unemployment rate to 4%. Average hourly earnings rose 0.4% month-over-month and 4% year-over-year, both topping forecasts.