Key Takeaways:
- Gold spot price fell another 3.5% month-to-date.
- The decline could stem from Powell’s hawkish stance on Q3.
- Demand for gold ETFs is rising – is a bullish reversal ahead?
YEREVAN (CoinChapter.com) – Spot gold price fell 3.5% month-to-date and hit its 3-month low at $1,915 on June 23, partially paring XAU’s year-to-date gains. In detail, precious metal’s valuation woes were further exacerbated by the Federal Reserve Chair Jerome Powell’s speech on Wednesday.
Fed’s hawkish stance trumped XAU price?
Powell cast a hawkish shadow on the coming quarter, saying that more interest rate hikes are in the books. Notably, the Fed has already raised interest rates in ten consecutive revisions since 2022 and brought down inflation to 4.0% in May.
Typically, in periods of interest rate hikes, with recession risk still looming, investors’ focus might shift to the rising US dollar, as the latter could provide more immediate returns. Thus, the precious metal developed an erratic inverse correlation with the dollar index (DXY).
David Meger, director of metals trading at High Ridge Futures, told Reuters that many global banks follow the same hawkish path, putting more pressure on the spot gold price.
The Fed and other central banks around the world continuing along their path of fighting inflationary pressures and the expectation that more rate hikes will be needed in the future is really the biggest weight on the gold market at the moment
said Meger.
Moreover, Meger asserted that gold price typically dwindles in June-July, calling it “traditional summer doldrums.”
Demand for Gold ETFs on the rise
Historically, gold remains a safe haven for investors wishing to hedge against inflation, market instability, and political turbulence. Aside from buying the asset directly, traders and investors can purchase the precious metal on gold exchange-traded funds, ETFs.
The ETF investment system exposes traders to a particular asset market without the necessity to purchase, store and resell it. Brien Lundin, the editor of precious metals and mining advisory Gold Newsletter, commented on gold ETFs’ impact on the asset’s popularity.
Over the long term, the ETFs are putting the world’s gold into the hands of the investing public. They are in effect, democratizing the management, and mismanagement, of the world’s money supplies.
asserted the editor.
Meanwhile, according to GoldHub data, the gold ETF market saw a $1.7 billion inflow in May, flipping the year-to-date demand positive at $1 billion. “North American funds continued to dominate global inflows by attracting $1.4 billion,” read the report.
Global physically-backed gold ETFs continued to see positive flows in May, marking their third consecutive monthly inflow. We believe that US debt ceiling negotiations and looming banking industry concerns also led investors to seek safe-haven assets, contributing to the positive trend in May.
commented the researchers.
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Moreover, almost all regions except for Europe saw positive tonnage demand in May. However, the soaring price in March and April partially drove the heightened demand. The June data will shed more light on the changing landscape once available in early July.
The positive wave in the gold demand could indicate an upcoming price reversal as XAU attempts to pare its losses.
