Summary of Key Points
Recently, gold prices have experienced a significant decline, plummeting from a high of $5,600 to barely holding the $4,000 level. The reasons behind this include: a massive withdrawal of short-term speculators, policy adjustments by the new Federal Reserve Chairman Jerome Powell (who, although not extremely hawkish, has reduced the attractiveness of gold), the diversion of funds towards the AI theme, and technical factors that are bearish on gold prices. However, the weaker-than-expected June non-farm payroll data has temporarily alleviated concerns about interest rate hikes, providing some safety for gold at the $4,000 level. Nevertheless, the long-term trend remains bearish.
Detailed Analysis
1. The Massive Withdrawal of Speculators: The Direct Driver of the Gold Drop
The previous surge in gold prices was largely driven by short-term speculators who bought aggressively due to fear of missing out on the market gains (FOMO). But why are they leaving now?
- AI Has Taken Center Stage: Speculators believe that investing in AI is more promising than gold, as AI is backed by actual profits from tech giants like Google and Microsoft, whereas gold generates no income and relies solely on speculation.
- Fear of Interest Rate Hikes: The Iran conflict in March increased inflation, leading to concerns about interest rate hikes by the Federal Reserve, which has deterred speculators from buying gold.
- Evidence of Withdrawal: Futures market data shows a sharp decrease in the number of long positions (net bullish bets) on gold, from 190,000 to less than 100,000—although they have not completely exited the market, their enthusiasm has significantly waned.
2. Powell's "Hawkish Stance": The Biggest Pressure on Gold
New Fed Chairman Jerome Powell is known as a "tough father," but he is not an advocate for aggressive interest rate hikes; rather, he is a "pragmatic monetarist":
- Core Policy: He aims to prevent the Federal Reserve from bailing out the government by stopping the purchase of long-term U.S. Treasury bonds (reducing the balance sheet) and letting the market determine bond interest rates, thereby forcing the government to cut spending.
- Impact on Gold: Since gold generates no income, if interest rates rise, investors will prefer to buy Treasuries for their interest payments, reducing the attractiveness of gold.
- Why Not Extremely Hawkish: Powell opposes raising interest rates too high, fearing that it could lead to a surge in government interest expenses (up to $1.4 trillion), which would be unaffordable for the budget. Instead, he favors using economic growth to reduce the debt burden.
3. The Diversion of Funds to AI: Gold Losing Favor
The current market focus is on AI, with funds shifting towards this sector:
- AI's Practical Appeal: Tech companies are generating real profits from AI, such as Microsoft's growing revenue from its cloud services.
- Gold's Weakness: Gold's appeal lies solely in its anti-inflation and safe-haven qualities; it lacks tangible earnings, making it less attractive to speculators.
4. The Battle to Hold $4,000: Temporarily Safe, but Crisis Looms Large
From a technical perspective:
- Short-Term Respite: The weak June non-farm payroll data (only an increase of 57,000 jobs, against expectations of 115,000) has ruled out the possibility of interest rate hikes in July, allowing gold to temporarily hold the $4,000 level.
- Long-Term Pressure: Gold prices have fallen below the 200-day moving average, and short-term support lines are also weakening, indicating limited resistance to further declines.
- Critical Signal: Gold would need to rise to $4,195-$4,200 (breaking through bearish trendlines) to show signs of a potential turnaround; otherwise, it is likely to continue falling. Traders still view any rebound as against the overall trend.
5. The Possibility of a Gold Recovery: Difficult, but Not Impossible
For gold to recover, the following conditions would need to be met:
- Fed Interest Rate Cuts: Lower interest rates would increase the attractiveness of gold, which generates no income.
- Re-emergence of Inflation: Gold's anti-inflation properties would become more prominent.
- Cooling Down of AI Trends: Funds could flow back into gold.
- Sudden Safety-Seeking Events: For example, an escalation in geopolitical conflicts (although previous events in the Middle East had limited impact on gold prices).
Currently, Powell's policies are keeping interest rates high, and AI remains a hot topic, making a recovery difficult. For now, the focus should be on whether gold can maintain the $4,000 level.
Conclusion
Gold is in a challenging position, with both short-term support from non-farm data and long-term pressures stemming from the withdrawal of speculators, Powell's policies, and the diversion of funds to AI. Ordinary investors considering buying gold at lower prices should be cautious, waiting for clear signals of Fed interest rate cuts, rising inflation, or a cooling down in the AI sector before making a move.