On Friday (May 23), during the Asian trading session, spot gold continued its volatile trend, trading around $3295.70 per ounce. Earlier this Thursday, the gold price briefly touched a two-week high of $3345 but quickly retreated to close around $3294. This pullback not only reflects the market's short-term tussle with the dollar and US bonds but also highlights the tug-of-war in gold under the macroeconomic "triple shock."
Dollar Rebound Exerts Direct Pressure
The immediate trigger for the sharp drop in gold prices comes from the strong rebound of the dollar index. On Thursday, the dollar index rose by 0.3% to hover around the 100 mark, closing at 99.94, thereby ending three consecutive days of decline. Jim Wycoff, a senior analyst at Kitco Metals, pointed out that the dollar's rebound significantly increased the cost of gold for non-dollar currency buyers, with higher sensitivity to exchange rates in the Asian and European markets amplifying the extent of gold's pullback.
It is noteworthy that structural factors are behind this surge in the dollar. The Eurozone's May PMI unexpectedly contracted, while US economic data showed PMI still expanding (52.1), prompting funds to "choose the dollar in comparison," thereby weakening gold's short-term appeal. Moreover, traders are unwinding previous "de-dollarization" positions, with technical adjustments further bolstering the dollar's strength in the market.
US Bond Market Volatility Weighs on Gold Prices
Bond market instability also constrains gold. On Thursday, the yield on 30-year US Treasury bonds briefly reached 5.15%, marking a 19-month high. This movement stems from concerns over an additional $3.8 trillion fiscal deficit. More crucially, the tepid demand in the 20-year Treasury auction indicates a structural retreat in sovereign bond demand.
Although a steepening yield curve typically suggests a stagflation environment that enhances gold value, current market sentiment remains cautious. Zachary Griffiths, an analyst at CreditSights, warns that short-term selling pressure could lead to a "technical stampede" in gold, especially as leveraged funds face margin calls.
The Shadow of Stagflation Quietly Forms
Deeper risks come from the economy itself evolving into a "cost-push stagflation" pattern. Data from S&P Global shows the US May input price index at 63.4 and the sales price index surging to 59.3, both reaching new highs since 2022. Meanwhile, the services sector saw the largest export decline since lockdowns, and manufacturing delivery delays rose to a 31-month peak. This combination of "rising inflation + slowing growth" is a typical sign of stagflation.
Economic policies from the Trump administration have further exacerbated contradictions. On one hand, reducing tariffs on China to 30% has boosted short-term business confidence. On the other hand, rising import prices have rapidly transmitted to consumer end prices. Businesses are preemptively stockpiling to cope with uncertainties, pushing inventory levels to an 18-year high. This "precautionary inflation expectation" could further drive up overall price levels.
Long-term Support for Gold is Gathering
Despite short-term pressures, the medium to long-term logic for gold is gradually taking shape. First, the expectation of currency devaluation brought by fiscal expansion provides natural hedging demand for gold; secondly, deepening credit risks in the US bond market have heightened its safe-haven appeal; finally, the shadow of stagflation enhances gold's anti-inflation attractiveness.
Jim Wycoff emphasizes: "The current market may superficially seem unfavorable for gold, but the global debt bubble and potential financial system risks are building deeper support for it." Historical data shows that when the 30-year US Treasury yield rises by more than 50 basis points in a single month, it often signals bigger concerns in the financial market, creating "pivotal entry opportunities" for gold.
Market Outlook
This trading day lacks major data releases, with only the US April new home sales data and speeches by several Federal Reserve officials attracting attention. Besides, geopolitical and global trade situations are still potential variables for the gold market. Overall, gold is limited in the short term, but the medium to long-term bullish trend remains unchanged, allowing investors to closely watch for strategic opportunities in every gold price correction.
