Gold prices next week: Wary of US inflation

>> Solutions to stabilize the Vietnam gold market

While central bank purchases and strong Asian demand have resulted in a long-term increase in gold, uncertainty over the Federal Reserve's monetary policies continues to cause substantial short-term volatility.

Gold prices rose to a new high above $2,450 per ounce earlier this week as markets began to confirm predictions that the Federal Reserve will lower interest rates twice this year.

However, the new breakthrough surge was short-lived, with gold expected to conclude the week more than $100 down. June gold futures were last trading at $2,334/oz, down over 5% from their record highs; prices are down 3.4% since last Friday, the sharpest selloff in eight months.

In the Vietnam gold market, SJC gold bar prices increased to VND 90.6 million per teal before falling to VND 88.9 million per teal.

The Federal Reserve's minutes from the FOMC meeting reflect a hawkish tone, with the central bank hesitant to lower interest rates while inflation pressures remain high. "Participants noted disappointing inflation readings over the first quarter and indicators pointing to strong economic momentum and assessed that it would take longer than previously anticipated for them to gain greater confidence that inflation was moving sustainably toward 2 percent," the minutes stated, adding that some FOMC members are willing to raise interest rates if inflation continues to rise.

Colin, an FX expert, believes that gold's selloff this week may cause more downward pressure for the yellow metal in the near term. "In the current context, the gold market will react to next week's inflation figures. The core Personal Consumption Expenditures Index (PCE), the Federal Reserve's favored inflation indicator, will be issued next week”, said Colin.

He said that evidence of easing price pressures might reignite Fed cut optimism, supporting gold prices. If the PCE report comes in beyond market estimates, it might further dampen gold prices. Technically, the bearish trend might drive prices below the $2,300/oz support level or lower. Bulls may need to return over $2385/oz in order to re-enter the game.

>> Wary of gold prices reversal in short-term

However, many analysts predicted that gold prices will skyrocket to $3,000/oz in the long run, as many central banks will continue to purchase gold for national reserves.

According to recent World Gold Council data, central banks would acquire a record 1,136 tons of gold in 2023, exceeding the previous high of 668 tons in 1971. This spike is part of a larger trend in which central banks diversify away from the US dollar.

Adam Rozencwajg, managing partner of Goehring & Rozencwajg, said there is a strong push by various nations, particularly the BRICS, to begin to transition away from the US dollar and use a foreign currency. So the renminbi is currently the currency used in the majority of these deals.

The BRICS nations (Brazil, Russia, India, China, and South Africa) recently enlarged its alliance to include six new countries, becoming BRICS Plus. Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates are also part of the formal expansion. These countries have actively sought alternatives to the US currency in international commerce. For example, China's Belt and Road Initiative frequently involves transactions in yuan, lessening dependency on the dollar. This trend might boost demand for gold as these countries seek reliable reserves.