Alright, folks, let’s cut straight to the chase. Gold got smacked today, with COMEX futures diving 2.40% to $3310.40, and Shanghai Gold following suit with a 1.81% drop to 786.42 yuan/gram. Why? Because reality is crashing the party.
Photo source:marketrealist.com
The New York Fed’s survey just dropped, and guess what? Inflation expectations are creeping up. We’re now looking at a 3.63% one-year expectation, a tick higher than last month’s 3.58%. This is a problem, a serious problem, for the gold bulls.
And let’s be real, even the President is publicly criticizing the Fed’s pace! He says everyone else wants rate cuts, but Powell is always ‘too late’. This isn’t a vote of confidence, people.
Now, the market is pricing in a very limited chance of a June rate cut—83.5% probability of a hold. By July, things shift slightly, with a 60.1% chance of at least a 25 basis point cut. But ‘slightly’ isn’t good enough for the momentum chasers.
Here’s a quick breakdown of why this matters:
Inflation Expectations: Rising expectations mean the Fed has less wiggle room to cut rates. They need to tame inflation first, and that’s not rate-cut friendly.
Rate Cut Probability: The market has dramatically scaled back its rate cut hopes. Lower rates historically boosted gold.
Real Yields: As rate cut hopes dim, real yields (nominal yields minus inflation) tend to rise, making bonds more attractive versus gold.
The bottom line? The easy money has likely been made in this gold rally. We’re seeing a swift adjustment based on shifting fundamentals. Keep a close eye on the market—further downside is very possible in the short term. Don’t get caught chasing a falling knife! This isn’t financial advice, just a dose of reality from someone who’s been watching this game for a long time.
