Federal Reserve ushers in the "Waller era" as gold prices enter wide fluctuations
Source: Xinhua Finance
Xinhua Finance, Beijing, May 25 — Last week (May 18 to 24), international spot gold ended the week with a volatile drop of $31.35, a decrease of 0.69%, marking the second consecutive week of losses. From an analytical perspective, the ups and downs in US-Iran negotiations have kept the market highly alert to global inflation. Meanwhile, the official beginning of the "Waller Era" and the continued expectations for hawkish Federal Reserve policies have continued to suppress bullish sentiment in the gold market. However, as positive signals emerged from US-Iran negotiations over the weekend, gold prices may stage a short-term rebound.
Looking at the overall situation for the new week, the US-Iran negotiations remain a key market variable. In terms of interest rate expectations, on one hand, the market will focus on speeches from multiple Federal Reserve officials this week to seek signals regarding monetary policy. On the other hand, the market's focus will also shift to the US April core PCE price index. If core PCE growth exceeds market expectations, gold prices may come under further pressure. Conversely, if PCE data is below expectations, gold could see a technical rebound.
Developments in the Middle East, especially news related to US-Iran negotiations, remained the primary driver of gold market volatility last week. Especially in the second half of the week, positive signals from US-Iran negotiations became an important factor supporting the short-term gold price stabilization and rebound from $4,500.
On the 21st, US Secretary of State Rubio said that the US-Iran negotiations had made some progress but he could not guarantee that an agreement would definitely be reached. He also stated that if a “good agreement” could not be achieved, “everyone is clear” about what other options the US has.
On the 23rd, US President Trump stated that a deal had been “basically reached” with Iran, including opening the Strait of Hormuz, pending final confirmation from both the US, Iran, and relevant countries. On the same day, Iran’s Foreign Ministry spokesperson Baghaei also said the US and Iran were working to finalize a memorandum of understanding. However, from messages conveyed by all parties, significant differences remain on issues such as Iran relinquishing its highly enriched uranium stockpile and opening the Strait of Hormuz.
The Washington Post reported further on the 24th that the US and Iran had agreed on a framework for a memorandum of understanding, which, once signed, would fully restore shipping through the Strait of Hormuz within 30 days. Citing a senior unnamed US official, the report indicated that the two sides had agreed on a “framework” that included a 60-day ceasefire extension to allow for a “final agreement” to permanently end the Iran conflict. In the interim, the Strait of Hormuz would be cleared of mines and reopened. Following this news, international oil prices fell significantly after the start of new week trading late on the 24th Eastern time, at one point dropping by more than 5%.
However, differences between the US and Iran remain. On the 23rd, two US officials told The New York Times that the agreement did not resolve the issue of how Iran would give up its enriched uranium stockpiles, leaving the specifics to the next phase of negotiations on Iran’s nuclear program. Baghaei also said on the 23rd that the current negotiations do not involve nuclear issues or the related lifting of sanctions. Regarding the Strait of Hormuz, Baghaei stated that the issue “has nothing to do with the United States” and is a matter for Iran and the countries bordering the strait. Iran is continuing to cooperate with Oman on the issue. Fars News Agency reported on the 24th that the latest social media statements from Trump regarding the “opening of the Strait of Hormuz” were “incomplete.”
Amid last week's frequent news disturbances regarding US-Iran negotiations, spot gold rebounded after dropping below the $4,500 level, but whether this rebound can be sustained remains the key question. Overall, for the time being, gold will continue to fluctuate within a range, and unless there is a breakthrough in the Middle East situation, a trend reversal upwards in gold is not expected.
Regarding the Federal Reserve's monetary policy, on May 22 (local time), the inauguration ceremony for the new Chair of the US Federal Reserve Board, Kevin Waller, was held at the White House, hosted by US President Trump. Although Waller pledged to uphold independent principles, maintain price stability, promote employment, and push for institutional reform, the White House’s special attention to this Federal Reserve has fueled market speculation.
Meanwhile, minutes from the Federal Reserve’s April meeting released last week showed that most officials believe the inflation cooling cycle will be prolonged; if prices remain high, further rate hikes may be necessary. The turmoil in the Middle East has disrupted energy supply chains, and price increases across multiple sectors continue to drive inflationary pressure.
Overall, the Federal Reserve’s policy tone has shifted to hawkish at this stage, with multiple officials expressing a preference for maintaining high interest rates over the long term. Even the previously dovish stance has become more cautious.
Against this backdrop, money market information indicates that the probability of the Federal Reserve raising rates before the end of the year is increasing. According to CME “Fed Watch”, the likelihood that the Fed will keep rates unchanged in June is 97.3%, but derivatives market traders expect about a 60% chance of a rate hike before December.
In the new week, several Federal Reserve officials are set to give public speeches, and investors will continue to seek signals about future interest rate policy directions. At the same time, the market will also focus on the US April core PCE price index. If core PCE growth exceeds forecasts, it could indicate price pressures are expanding into the broader economy, further strengthening bets on the prospect of hawkish Fed policies, likely further weighing on gold prices. However, if PCE data is below expectations, gold may see a technical rebound.
Until clear signals emerge from macro and policy directions, technically, gold prices remain in a consolidation phase. For now, the 200-day and October moving averages in the $4,385–$4,375/ounce zone form key support, while the 60-day and 100-day moving averages in the $4,730–$4,800/ounce zone form critical resistance. In the short term, resistance is seen at $4,580–$4,600/ounce, with key resistance at $4,680–$4,730/ounce; short-term support is at $4,530–$4,500/ounce, with key support at $4,400–$4,370/ounce.
In the Shanghai gold market, near-term resistance is in the 1,000–1,030 yuan/gram zone, with key resistance at 1,060–1,080 yuan/gram; support is at 980–960 yuan/gram, with key support at 950–920 yuan/gram. For Shanghai silver, resistance is at 19,500–20,500 yuan/kilogram, key resistance at 21,500–22,000 yuan/kilogram; support is seen at 18,500–17,500 yuan/kilogram, with key support at 17,500–17,000 yuan/kilogram.
(Author: Li Yuefeng, Researcher at Beijing Center for Gold Economic Development)
Editor: Zhu Henan
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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