In early Asian trading on Wednesday (May 8), spot gold fluctuated in a narrow range. Currently, it is trading around 2315.49 US dollars/ounce. Gold prices fell on Tuesday following the rise on the previous trading day. The Israeli army seized Rafah and blocked aid routes. The US still believes it can break the cease-fire impasse and suppress safe-haven demand for gold, but the price of gold has not dropped much because traders are still watching the prospects for the Federal Reserve to cut interest rates.

Spot gold fell 0.43% to $2313.81 an ounce on Tuesday. US futures closed 0.3% lower at $2324.2 an ounce.

(Daily chart of spot gold, source: Easy Huitong)

Jim Wyckoff, senior market analyst at Kitco, said, “What we saw in the gold and silver markets on Tuesday was a routine price correction after Monday's rise, which was not surprising.”

According to the US Federal Reserve's observation tool on the Chicago Mercantile Exchange, traders in the federal funds futures market believe that the possibility that the Federal Reserve will cut interest rates in September is about two-thirds.

Minneapolis Federal Reserve Chairman Kashkari said in a new article published on Tuesday that the strength of the US real estate market and the potential stagnation of progress in inflation mean that monetary policy may not be as tight as Federal Reserve officials think.

According to the data, the central banks of major Asian countries have accumulated gold for the 18th month in a row. Despite high prices, they have increased their reserves by 60,000 troy ounces.

Economists at Morgan Stanley have delayed expectations of when the Federal Reserve will cut interest rates for the first time from July to September, citing the “lack of progress” in inflation. They still expect to cut interest rates three times this year, 25 basis points each time. Economists such as Ellen Zentner, Sam Coffin, and Diego Anzoategui said in the report that the lack of progress since the beginning of this year means that it will take longer for Fed policymakers to be convinced that inflation is continuing to fall towards the 2% target. They expect that the three-month and six-month core PCE equivalent to an annual rate will be “close to or below” 2% by the end of the year, so in this case, “it will be too late” to cut interest rates until after September.

Heraeus (Heraeus) analysts said that gold prices continue to face resistance from rising bond yields, while silver will benefit from the introduction of 5G globally in the next few years. Analysts wrote in the latest precious metals report that the Federal Reserve has confirmed the market's assessment of the economy.

They said: “Federal Reserve Chairman Jerome Powell denied the possibility of a June rate hike at the FOMC meeting last Wednesday, but in light of the lack of progress in achieving the 2% target interest rate, he reiterated his commitment to prioritize inflation containment.” “Although the dollar remains strong, it has declined over the past two weeks. However, after the meeting, the possibility of cutting interest rates before the end of the year gradually increased.”

They also pointed out that the central bank's gold purchases in the first quarter were unprecedented. “Global central banks added 289.7 tons of gold reserves to a record high in the first quarter,” they said. “Western ETF investors, particularly European funds, are still clearly absent from the gold market. These funds reduced their holdings by about 30 tons of gold from ETF holdings in April.”

The Israeli army seizes Rafah crossing and blocks aid routes, and the US still believes it can break the cease-fire impasse

The US said the cease-fire negotiations in Gaza should bridge the differences between Israel and Hamas; at the same time, the Israeli military occupied the main crossing in Rafah on Tuesday and closed an important aid channel.

Hamas official Osama Hamdan warned in an interview with reporters in Beirut that a cease-fire agreement cannot be reached if Israel continues its military aggression in Rafah.

White House spokesman John Kirby (John Kirby) said that Hamas proposed amendments to Israel's proposals aimed at ending the impasse on Monday. He said that the revised text of the agreement shows that the remaining gap between the two sides “can definitely be made up”. However, he was unwilling to specify the details. Israel said on Monday that the three-phase proposal agreed by Hamas was unacceptable.

Kirby said that mediators from Qatar and Egypt, as well as US and Israeli officials, are in talks in Cairo. Hamas also stated that its delegation is also in Cairo.

Despite calls from the US, other countries, and international agencies over the past few weeks to prevent Israel from attacking the Rafah region in a big way, Israel has seized the Rafah port. Israeli military video shows a convoy of tanks crossing the Rafah crossing between Gaza and Egypt, and the Israeli flag is raised on the side of the Gaza Strip.

Israeli Prime Minister Benjamin Netanyahu (Benjamin Netanyahu) said that seizing this port was a “very important step” for Israel towards the stated goal of destroying Hamas's military capability.

The United Nations and other international aid agencies said that the closure of two ports into southern Gaza — Rafah and the Israeli-controlled Kerem Shalom (Kerem Shalom) — is tantamount to cutting ties between Gaza and outside aid, and there are almost no stores in the country.

An Egyptian Red Crescent Society source said that transportation has completely stopped. Philippe Lazzarini, head of the United Nations Relief and Works Agency for Palestine Refugees in the Near East (UNRWA), said on X: “These crossings are a lifeline... they must be reopened immediately.”

The White House said it has been told that the Karim Shalom port will reopen on Wednesday, and fuel delivery through Rafah will also resume at that time

UN Secretary General Guterres called on Israel and Hamas to make every effort to reach a cease-fire agreement. “The full-scale attack on Rafah would certainly be a human disaster,” he said.

Also, four sources revealed on Tuesday that the US has delayed the delivery of some weapons to Israel by two weeks.

The White House and Pentagon will not comment on this, but this will be the first time since the beginning of this war that the Biden administration has delayed sending weapons to Israel.

Federal Reserve Kashkari: Monetary tightening did not limit economic development as expected

Minneapolis Federal Reserve Chairman Kashkari said in a new article published on Tuesday that the strength of the US real estate market and the potential stagnation of progress in inflation mean that monetary policy may not be as tight as Federal Reserve officials think.

Misestimating the impact of current policies on the economy “can explain the range of data we have observed”, particularly in terms of housing, but also in terms of sustained economic growth more broadly, Kashkari wrote, particularly in the real estate sector, which has proven to be effective... “Austerity policies are more resilient than normal in the past,” leaving the Federal Reserve without a key channel where the effects of high interest rates can usually be felt.

Kashkari said that there may be many reasons for this situation. Some of the reasons are direct, such as a shortage of housing supply combined with rising demand, while others are due to changes in “neutral” interest rates that are more difficult to diagnose, which means that the Federal Reserve's policies are not limiting economic development as expected.

In any case, this means that the Federal Reserve must determine whether inflation actually stagnates above target, or whether price pressure will eventually continue to ease — a critical question that may force policymakers to decide whether it is worth risking a recession to adopt a more tight monetary policy in order to squeeze out a few percentage points from the rate of price increases.

Kashkari wrote, “The question we are facing now is whether the process of falling inflation is actually continuing, just taking longer than expected, or whether the inflation rate has stabilized at around 3%. This shows that [the Federal Open Market Committee] still has more work to do to achieve our dual mission goals.”

Kashkari gave no answers, and did not update his views on the correct path of monetary policy. Prior to the Federal Reserve's last meeting, he said that disappointing inflation data and continued growth may mean that the Fed will not cut interest rates at all this year, but further raising the target policy interest rate “is not a possible situation.”

Kashkari proposed another possibility: for various reasons, and maybe even temporary, “neutral” interest rates have risen, which means the economy will still be stronger than before under the same monetary policy.

“Due to the horizontal fluctuation in the inflation rate in the recent quarter, this raises doubts about how restrictive the policy is,” Kashkari wrote. “Today's uncertainty about neutral interest rates poses a challenge to policy makers.”

Influenced by Kashkari's speech, the US dollar index was relatively strong on Tuesday, closing at 105.37, an increase of about 0.27%, for the second consecutive trading day, which had some depressing effect on the price of gold.

No important economic data was released on this trading day, and investors continued to pay attention to the speeches of other Federal Reserve officials.

At 07:50 Beijing time, the current price of spot gold is 2314.91 US dollars/ounce.