- Spot gold prices fell on Tuesday, retreating from the two-week high reached in the previous session. The market fundamentals were influenced by inflation concerns due to the Middle East conflict and the easing of geopolitical tensions, resulting in an overall decline from high levels.
- Investors are closely watching the Federal Reserve's June meeting minutes, set to be released on Wednesday, seeking key insights into the future monetary policy stance of the new chairman, Kevin Warsh, which has led to a cautious bias in the precious metals market.
- Although U.S. service sector activity has slowed, a rebound in employment data has limited the immediate downside for gold prices. The CME FedWatch tool shows the probability of a rate hike in September has decreased from over 60% to about 57%.
Fed Policy Minutes Loom, Suppressing Bullish Momentum
Spot gold prices fell 0.4% to $4,148.59 per ounce as the market chose to reduce risk exposure ahead of the Federal Reserve's June meeting minutes. Investors are eager to assess the hawkish or dovish tendencies of the new chairman, Kevin Warsh, from the text, leading to short-term profit-taking in bullish safe-haven funds. Due to potential uncertainty in forward guidance, overall liquidity in the commodity market tends to tighten marginally before major macro events.
Macro Employment Data Adjusts Rate Hike Expectations
The latest data shows a slowdown in U.S. service sector activity in June, but employment rebounded after three consecutive months of contraction, suggesting resilience in the labor market. However, as the U.S.-Iran ceasefire agreement alleviated some inflation concerns and last week's non-farm payrolls were weaker than expected, traders have lowered the probability of a September rate hike from over 60% to 57%. This slight adjustment in macro policy expectations has directly led to a short-term revaluation of non-interest-bearing assets like gold.
Cooling Geopolitical Factors Lead to Gold Price Retreat
Driven by the Middle East conflict strengthening the dollar and earlier rate hike expectations, gold prices have fallen more than 25% from the historical highs set earlier this year. Although gold prices hit a two-week high on Monday due to recent safe-haven buying, the gradual easing of geopolitical premiums with the U.S.-Iran ceasefire agreement has started to erode gold's inflation-hedge premium. Fund flows indicate that some safe-haven assets are exiting the commodity market, suppressing the sustained rebound momentum of precious metals.
Precious Metals Under Pressure Amid Market Expansion
Besides gold, the precious metals sector saw a broad decline on Tuesday, with spot silver falling 0.8% to $61.57 per ounce, and spot platinum and palladium also experiencing significant pullbacks. In terms of market trading structure, Citibank announced it has become the fifth bank to provide clearing services for the London over-the-counter gold market, marking a significant expansion of major investment banks in precious metals derivatives and clearing services. This move is expected to enhance liquidity in the over-the-counter market in the long term, but it has not reversed the sector's selling pressure in the short term.
