Summary of Key Points
The Federal Reserve (Fed) maintained its interest rates unchanged, but there were rare disagreements within the committee (3 votes in favor of raising rates). Chairperson Jerome Powell sent out hawkish signals, emphasizing that the Fed will not abandon its 2% inflation target and will act if necessary. This led to a fluctuating gold price trend, with no clear direction. Wall Street institutions have vastly differing predictions for gold prices, with differences of up to $600. The demand for gold is diverging: central banks around the world are still increasing their holdings (long-term stability), but there has been a significant outflow from gold ETFs, especially in the West and China (short-term volatility). The demand for gold jewelry has been suppressed by high prices, and investment demand in the second half of the year may be driven by Asian over-the-counter transactions.
What Do the Fed's "Disagreements" Really Mean?
At this meeting, 9 members voted to keep rates unchanged, while 3 voted to raise them by 25 basis points. This is the first time that three committee members have voted against the same decision, indicating increasing pressure from the hawks (who advocate for raising rates to combat inflation). More importantly, Chairperson Powell's statement clarified that this is not a "pause on rate hikes" but rather an "observation period," and he stated that the Fed will not hesitate to raise rates if needed, emphasizing that the 2% inflation target must not be compromised (unlike in previous years when there was more flexibility).
The impact on the market is that investors are unsure whether rates will rise in the future. Huatai Securities believes that maintaining rates has made the Fed seem less credible, and the probability of a rate hike in September remains high. Shen Yin Wan Guo Futures also agrees that, with the constant changes in geopolitical news, there is no clear upward or downward trend for precious metals. However, some institutions (such as Morgan Asset Management) think that the core decision-making group is still inclined to maintain stability, and since most of the hawks are rotating among the governors, the probability of keeping rates unchanged this year is higher. Even if rates do rise, they are unlikely to increase consecutively.
Why Is the Gold Price Fluctuating So Much with No Clear Trend?
Before the meeting, markets feared a rate hike by the Fed, leading to a sell-off in gold, with spot gold prices falling below $4,000. After the decision to keep rates unchanged was announced, investors bought back gold, pushing prices up near $4,100. However, Powell's hawkish remarks later pushed prices down to $4,043.
The reason for the unclear trend is twofold: on one hand, hawkish signals are weighing on gold prices; if the Fed does raise rates, the dollar will strengthen, making gold more expensive and reducing demand. On the other hand, there are still factors supporting gold prices, such as central banks continuing to buy gold (a net increase of 289 tons in the second quarter, up 62%) and geopolitical risks (gold serves as a safe-haven asset in times of uncertainty). As a result, gold prices are stuck in a range with no clear driving force.
Why Do Wall Street Institutions Have Such Different Views on Gold Prices?
The target prices predicted by different institutions differ by up to $600, reflecting a clear divide between bulls and bears:
- Goldman Sachs (bearish): Reduced its target price for the end of 2026 from $5,400 to $4,900 and advised caution. They argue that if the Fed raises rates, gold's role as a hedge against policy risks will diminish, but central banks in emerging markets are still buying gold as part of diversifying their reserves.
- UBS (neutral-bullish): Optimistic for the medium term, predicting prices to reach $4,675 by 2026 and $4,800 by 2027. They note that gold prices have often found support around $4,000 and are unlikely to fall significantly below this level.
- Dao Fu (optimistic): Believes that the Fed's hawks have reached their limit and expects gold prices to fluctuate between $4,750 and $5,500 over the next 6-9 months, with $3,750-$4,000 serving as a solid support level.
- World Gold Council (neutral): Predicts that prices will remain around $4,100 this year (with a ±5% range) unless there are major changes in the market, but gold could rise if geopolitical or economic conditions worsen.
Changes and Constants in Gold Demand: Who Is Buying, Who Is Selling?
- The Constant: Long-term Investors Are Still Buying: Central banks are the main buyers, with a net increase of 289 tons in gold reserves in the second quarter, up 62%. Many countries (such as China and India) are continuing to build their holdings to diversify against dollar risks, although this trend may slow down compared to previous years.
- The Changes: Short-term Investors and Demand Structure:
- Severe Outflow from ETFs: Global gold ETFs saw a net outflow of 45 tons in the second quarter, with China experiencing a particularly large outflow of RMB 20 billion, reducing their holdings by 20% (from a peak of 306 tons to 277 tons). This is due to high price volatility and fear of losses among short-term investors.
- Suppressed Demand for Gold Jewelry: High gold prices have reduced consumer demand for jewelry, and people prefer to hold gold rather than sell it, resulting in little change in the supply of recycled gold.
- Shift in Investment Demand to Asia: The World Gold Council suggests that investment demand in the second half of the year may come from Asian over-the-counter transactions (such as individuals buying bars and coins) and Asian investors. Western ETF demand will depend on U.S. Treasury yields, Fed policies, and dollar trends.
There is also a positive sign: short-term investors are beginning to return, with the SPDR Gold ETF (the world's largest gold ETF) increasing its holdings by 10 tons in 12 days, and speculative funds have been adding long positions for three consecutive weeks, indicating a gradually more optimistic market sentiment.
Conclusion
The core contradiction in the current gold market is the uncertainty around Fed rate hikes versus the continuous buying by long-term investors (central banks). For individual investors considering investing in gold, it's important to decide whether to go for short-term or long-term gains. Short-term fluctuations are significant, so they need to pay close attention to Fed news. In the long run, gold remains a valuable asset for hedging and risk diversification. However, don't expect a sharp rise in prices, as the trend is still unclear.