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Gold saw further selling May and June, ostensibly with continued disappointment of Iran deal hopes, but underlying this continued selling by a single US ETF linked to the financial ecosystem. Within available data, this is the only source of supply with central banks back to buying, and appears to be linked to fading hopes of early fiscal dominance through rate cuts under new Fed chair Warsh. Indeed, comments by Fed speakers shows considerable resistance. Fiscal dominance might now mean slow or insufficient hikes when needed, pushing the path of stronger gold prices further ahead.
Gold comes off early highs on lack of Iran progress, stronger US data
Gold was supported early in May, with optimism around a US/Iran MOU as well as mixed US data, though prices began to fall second week onwards – first with the start of challenges to UK PM Sir Starmer, then stronger US retail sales, and then comments by Iranian supreme leader Khamenei on Iranian uranium not leaving the country. Prices found a range in the third week with indications that the US and Iran were moving close to a deal. Early June saw heavy selling with stronger US payrolls and pricing in of a Fed rate hike this year, as well as with resumption of kinetic action in West Asia. As of writing, prices are below USD 4100/troy ounce.
US gold supply might be spooking other buyers, longer-term fiscal view remains
A look at partial demand and supply data available shows that near-term supply is now only from a single US ETF associated with high-frequency and leveraged accounts – perhaps in line with fading of hopes of a Warsh-driven rate cut starting the US fiscal dominance story. Apart from this, demand appears to be stable with central bank buying back, and indeed tends to pick up after steep drops in price. Fiscal dominance is now likely to be in the form of delayed rate hikes rather than near-term rate cuts, pushing moves higher in gold prices to a more gradual pace.
We continue to see longer-term gold support, through near term bumps
In line with the above, we continue to see the path to USD 6000/troy ounce as fundamentally driven given the need for fiscal dominance, especially as defence spending is likely to lead to significant underperformance of the more responsible fiscal trajectories currently seen. However, this is going to be slow, and can potentially test levels below USD 4000/troy ounce in the interim.
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