rate hike expectations continue to rise, putting pressure on gold's short-term prospects. Citigroup lowered its three-month gold price target from $4,300 per ounce to $4,000, citing the Hormuz incident.ChannelThe stalemate and high energy prices have boosted market expectations for the Federal Reserve's rate hike this year.
In a report on Monday, Citi analysts Kenny Hu and others pointed out that weak physical demand could further drag down gold prices. They warned,If the blockade of the Strait of Hormuz continues until the end of summer, the shrinking gold purchases could push gold prices down to $3,500 per ounce.Meanwhile, stronger-than-expected U.S. employment data pushed the dollar to a near two-month high, putting additional pressure on dollar-denominated gold.
Nevertheless, Trump's statement on Monday that both Israel and Iran intend to "immediately cease fire" and that ultimately peace talks are progressing helped gold prices rebound from intraday lows, easing some downward pressure. Spot gold prices are currently trading at $4,318.07 per ounce, having previously hit a low of $4,268.39 since March 23.
rate hike expectations rose sharply, and a stronger dollar suppressed gold prices.
Strong employment data is the direct trigger for rising expectations in this round of rate hike. The United States added 172,000 jobs last month, exceeding market expectations, significantly increasing traders' bets on the Federal Reserve's year-end rate hike.
According to data from CME Group's FedWatch tool, the market is currently pricing in a 43% probability of a 25-basis-point December rate hike, compared to only about 14% a month ago. The dollar subsequently strengthened to a nearly two-month high, further suppressing the attractiveness of dollar-denominated gold.
The market is currently awaiting the release of U.S. Consumer Price Index (CPI) data on Wednesday and Producer Price Index (PPI) data on Thursday for further clues about the Federal Reserve's interest rate path.
The stalemate in the Strait of Hormuz poses key downside risks.
Citi analysts list the situation in the Strait of Hormuz as one of the most important risk factors for gold prices in the short term. The continued blockade of the strait has pushed up energy prices, which in turn has exacerbated inflationary pressures and reinforced market expectations that the Federal Reserve will maintain a tightening stance.
Analysts point out that if the lockdown continues until the end of summer, a decrease in gold purchases could cause gold prices to fall to $3,500 per ounce. "Therefore, short-term risks appear to be negative, and buying on dips only makes sense if there is confidence that the situation will not escalate again."
It is worth noting that the expectation of a ceasefire has a dual effect—if a peace agreement can be implemented, it will reduce the risk of energy-driven inflation, thereby alleviating the pressure on the central bank to maintain high interest rates, but at the same time, it will weaken the demand support for gold as a safe-haven asset.
Long-term goals remain unchanged, but short-term risks are extremely high.
Despite lowering the short-term target price,Citigroup maintained its price target of $5,000 per ounce for gold over the next 6 to 12 months, indicating that its long-term view on gold remains unchanged.
"Over the long term, we remain bullish on gold, but we believe that short-term investment in gold is extremely risky for investors who have not set wide stop-loss levels and have short investment horizons," the analysts wrote.
This statement means that Citigroup's bullish logic on gold remains valid in the medium to long term, but short-term traders need to remain highly cautious under the multiple pressures of rate hike expectations, a strong dollar, and geopolitical uncertainties.
