Stronger than expected inflation numbers and dovish Fed comments drove gold higher last week

Goldhub blog

Stronger than expected inflation numbers and dovish Fed comments drove gold higher last week

Adam Perlaky
Manager of Investment Research
World Gold Council

Posted:

  • The gold price rebounded last week and has risen 7 out of the last 8 weeks (LBMA 1.4%, XAU 1.2%). The price strength was driven by a weaker US dollar and a steepening yield curve, which was the byproduct of  Fed Chairman Powell’s comments that were more dovish than expected and all but assured a July rate cut.
  • The probability of a July 50bps cut spiked again from zero to 25%; this despite CPI data coming in higher than expected (a sign that inflation could be creeping into the market); the US 2/10 curve is near the ytd highs.

 

July Fed Rate Cut Probabilities

Source: Bloomberg

 

  • COMEX net longs for the previous two weeks were released and showed that two weeks ago, net longs were 917t; it is worth noting that all-time highs in net longs are 1,082t. They fell back to 854t last week but remain very high.

 

COMEX Net Longs

 

  • Futures open interest has risen to over $100bn this month, driven mostly by COMEX, and is 26% above the ytd average.
  • The gold price remains in a bullish flag formation, which would project the price of gold to ~$1,530 if confirmed.

 

  • North American funds were the primary drivers of the $290mn of global gold-backed ETF inflows last week. Flows have continued their June trend with $362mn coming in through the first half of July, almost entirely from North American funds. On the year, there have been global inflows of $5.4bn, with 72% coming from Europe.