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Is the Golden Era Over? Analyzing the Recent Fluctuations in Gold Prices

MARKETINGIs the Golden Era Over? Analyzing the Recent Fluctuations in Gold Prices

Since the beginning of the year, gold has increased in value by 13%, but its price is over $100 below the historical record set a month ago. Is this just a correction, or is something wrong with gold? The best time to invest złoty in gold has likely passed.

In mid-May, the price of gold was at $2,330 per ounce. The 30-day minimum was $2,304, and the maximum was $2,454. The price of $2,454 per ounce on May 19th became the new historical record.

– “Most likely, we are only dealing with a correction, but it has very strong foundations related to the decisions of the Central Bank of China,” said Michał Stajniak, Deputy Director of the XTB Analysis Department, in an interview with MarketNews24. “When the historical record was set, demand from central banks was very high, led by the People’s Bank of China. For 18 months, this bank increased its exposure to gold, and May was the first month when the People’s Bank of China stopped increasing its gold reserves.”

The decision of the Central Bank of China caused great uncertainty among investors, further compounded by reduced hopes for interest rate cuts in the US.

The Fed surprised significantly with its June decision, reducing expectations for the number of interest rate cuts this year. Most macroeconomic data has been positive in recent months, so a slightly hawkish shift was expected. However, the Fed now anticipates only one rate cut.

It is worth mentioning that before the Fed’s decision, the CPI inflation for May was published, which did not allow Fed bankers to update their forecasts based on the lower-than-expected reading. CPI inflation fell to 3.3% year-over-year, despite expectations of no change, while core inflation fell deeper to 3.4% year-over-year.

The projection for the midpoint of the interest rate range increased from 4.6% to 5.1%. This essentially means that bankers now expect only one rate cut. It would most likely occur in November or December. However, Powell mentioned during the conference that inflation projections were conservative. The Fed expects slightly higher inflation this year: PCE at 2.6% instead of 2.4%, and core PCE at 2.8% instead of 2.6%.

Expectations for next year have slightly increased, but inflation is still expected to be on target in 2026. Therefore, if inflation behaves similarly to May (and we already know that for June we should experience another negative impact from fuel prices), the chances of a cut will increase. The problem is the rather long gap between the July and September Fed meetings.

– “The prospect of maintaining higher interest rates for a longer time causes a stagnation in gold prices,” comments the XTB expert. “However, we should expect continued gold purchases by central banks, which will move away from the US dollar in reserves while increasing their exposure to gold.”

The market currently prices in 1.7 cuts this year, though after the inflation reading, it was pricing in two full cuts. A slightly more hawkish Fed may be a blessing for the market, as it may lead to a more lenient approach from the Fed, driving Wall Street, precious metals, or negatively impacting the dollar.

After the summer, investor sentiment may change. The current change in gold prices will then prove to be just a correction. And gold prices will once again be very close to records.

For Polish investors, the prospects are much more ambiguous, as exchange rate risk must be considered. The złoty was very strong with the price slightly above 3.90 per dollar but weakened by over 10 groszy in June.

– “There is a chance that we will see a new historical gold price record later this year,” adds M. Stajniak from XTB. “However, the best time in recent months to invest złoty in gold has probably already passed.”

It is important to remember that the above information does not constitute investment advice. Investing in gold involves risk, and each investor should independently assess their ability to accept this risk.

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