Transcription
Yesterday, the Bank of Japan decided to do something they had not done for a full 31 years: announce an increase in the policy interest rate to 1%. Many people, upon hearing this news, might ask themselves, "Japan raised interest rates, so what does that have to do with me? I don't invest in the Japanese stock market and have no intention of exchanging yen to keep."
Friends, I want to tell everyone right here that this matter is hugely interconnected and closer to you than you think. Why do I dare to say this? That's because the real force behind, or the real driver, that made Japan decide to raise interest rates this time is not sitting in Tokyo. The true origin comes from the situation in the Middle East, and the impact of Japan raising interest rates is not limited only to within Japan. Instead, it will send ripples through the channels of global investment flows, penetrating every nook and cranny of the world. And of course, that includes the price of gold you hold in your hand right now.
A few days ago, UBS bank just released its latest report, which frankly stated that under immense double pressure, both from the surge in bond yields and the strengthening of the US dollar, the price of gold in the near term has a chance to fall to the level of $3,850 to $4,000 per ounce. To put it simply, from the current price level, gold may still have room to drop by several hundred dollars.
Now, the important question is whether Japan's announcement of an interest rate hike this time will be a catalyst that pushes the price of gold down in the direction UBS predicted. Will the price of gold really fall to see a number starting with 3? Today, I will unravel and answer these questions for everyone, point by point.
First, let's clearly understand what happened yesterday. At yesterday's monetary policy meeting, the Bank of Japan's board voted 7:1 to decide to raise the policy interest rate from 0.75% to 1%, or simply put, an interest rate hike of 25 basis points. This marks the first time since 1995, or in 31 years, that Japan has re-entered the era of 1% interest rates.
This is very important, and there is one detail that is particularly noteworthy: the Governor of the Bank of Japan, Mr. Kazuo Ueda, was seriously ill and had to be hospitalized, and did not attend this meeting. The fact that the board decided to raise interest rates despite the Governor's absence is a very rare event in the history of the Bank of Japan. What does this tell us? It means that even if the supreme leader is not present, raising interest rates is a mandatory fight that must be done. It is clear that the Bank of Japan is facing immense pressure that leaves them with no other choice but to raise interest rates.
Alright, now we have seen the picture of what happened. Now I have a question I want to ask everyone: why did Japan have to rush to raise interest rates so much? Many might immediately retort, "Well, their economy has improved, hasn't it?" I must tell you, that is completely wrong. Japan's interest rate hike is not because its domestic economy is strong and prosperous, but because they were forced into a corner.
And who was it that forced them? It could be no one else but Donald Trump and the conflict in the Middle East. Let's slowly dissect this chain of events together.
Starting with Layer 1: Japan is a major power that primarily imports energy, relying on crude oil from the Middle East for as much as approximately 90%. When America and Iran began to clash, the Strait of Hormuz was sealed off. About a quarter of the world's seaborne crude oil shipments were frozen there and could not be exported, causing the price of Texas crude oil to surge from $70 to over $100 per barrel in an instant.
Alright, we have clarified the reasons for Japan's interest rate hike. Now, we will move on to the main highlight, which is how Japan's interest rate hike is connected to the gold market.
Moving to Layer 3: While goods became more expensive, the yen continuously weakened. The exchange rate of the dollar against the yen continued to hover around the 160 level. The less valuable the yen became, the more exorbitantly expensive imported goods became. The Japanese government attempted to spend a massive 11.7 trillion yen last month to intervene in the currency, but the results barely helped at all.
And Layer 4: Labor wages also began to rise. The results of Japan's annual wage negotiations in 2026 showed that businesses expect an average wage increase of approximately 5.02%, which marks the third consecutive year of wage increases exceeding 5%. As wages increased, product prices were pushed higher accordingly. Both of these became catalysts for each other, leading to an uncontrollable wage-inflation spiral.
Friends, take a look at the overall picture of this chain. It happened like a domino effect, one by one. Starting with the war in the Middle East, which made oil expensive. Expensive oil caused Japan's import costs to surge. Costs surged, but the yen weakened. The weakening yen caused inflation to break through the ceiling, and when inflation became uncontrollable, Japan had no other choice but to use its last resort: raising interest rates. Every step was locked in, unable to move.
Deputy Governor of the Bank of Japan, Mr. Shinichi Uchida, made a very profound statement at a press conference. He said that the risk of a severe economic recession from the conflict in the Middle East is decreasing, but the impact of exchange rates on product prices is more severe than in the past. If I were to translate this into simple layman's terms, it means the war might have ended, but the scars of inflation remain. The strait might be open for ships to pass, and oil prices might fall in the short term, but the costs for Japanese companies that have already surged, the inflation expectations that have already been ingrained in people's minds, and the yen that has already weakened provocatively – these things cannot be magically returned to normal simply by signing a single piece of paper. This is why, even if the US and Iran have signed a peace treaty, Japan still has to proceed with raising interest rates, because the aftermath of the war has already deeply embedded itself into Japan's economic system.
Alright, we have clarified the reasons for Japan's interest rate hike. Now, we will move on to the main highlight, which is how Japan's interest rate hike is connected to the gold market.
Many might still argue in their minds that Japan raising interest rates is just about the yen; how would it affect the price of gold? You must first understand that gold is a non-interest-bearing asset. When you hold gold bars in a safe, it doesn't generate offspring in the form of interest for you; moreover, you even have to pay storage or maintenance fees. But as soon as Japan announced an interest rate hike, the returns from holding yen-denominated assets immediately increased. Now, when one side offers interest and the other doesn't, vast amounts of investment capital worldwide will inevitably flow to where it can get better returns.
An analysis from Price Seer clearly stated that the Bank of Japan's move to raise interest rates to 1% was in line with market expectations, which makes yen-denominated assets more attractive and puts pressure on the demand for holding non-interest-bearing precious metals like gold. Coupled with the short-term tendency for the dollar to strengthen and be difficult to depreciate, gold prices have to bear heavy pressure. Price Seer rated the gold outlook at negative 1, which is the lowest score among all commodities.
But the story doesn't end there. The impact of Japan's interest rate hike on gold doesn't move in a single, straightforward direction. There's a deeper, hidden chain reaction: the yen is considered a major currency that global investors commonly use for carry trades. Let me briefly explain this term so everyone has a clear picture. A carry trade is when funds or large global investors borrow yen, which has almost zero interest cost, and then exchange that borrowed yen for dollars or other currencies that offer higher interest rates, to invest further.
But now that Japan has raised interest rates, the cost of borrowing yen has increased. What follows is that these investors might be forced to liquidate their portfolios or close their investment positions. What does liquidating a portfolio mean? It means they have to aggressively sell various assets worldwide that they had previously bought with yen, to exchange them back into yen to repay their debts to the banks. This phenomenon will cause a severe and simultaneous rush to sell risky assets globally. And whenever the market experiences panic and such a massive sell-off to reduce risk, the sentiment of investors wanting to flee to safe-haven assets will immediately surge.
Many analysts point out that Japan's interest rate hikes often come with concerns that global cash liquidity is contracting. But if this event is severe enough to cause extreme fear among investors, the value and attractiveness of gold as a safe haven will shine again. Therefore, the impact from Japan on gold is layered in two dimensions. The first dimension is short-term, which will be negative because capital will flow out to seek interest. But the second dimension is in the medium term: if panic occurs to the point where people rush to flee for their lives, it might turn out to be beneficial for gold. All of this depends on how severe and widespread the chain reaction from the carry trade portfolio sell-off becomes.
This is very important. I want to warn everyone that Japan's interest rate hike this time is not an isolated event that happened and then ended. Two dominoes have already fallen, and more are about to fall continuously. Don't forget that this week is "Super Central Bank Week," where central banks worldwide are making major moves.
Going back to June 9th, the Central Bank of Indonesia had already preemptively announced an interest rate hike. They held a special meeting and resolved to raise the benchmark interest rate by 25 basis points to 5.5%. This was a continuous rate hike following an unexpected 50 basis point increase on May 20th. This means that within just 3 weeks, Indonesia raised interest rates by a total of 75 basis points. The main goal was to maintain the stability of the rupiah and prevent capital outflow from the country. Indonesia is thus considered the first domino to fall in this game.
Next, on June 16th, the Bank of Japan announced an interest rate hike to 1%, as we know. This is the second domino that immediately followed. On the same day, the Reserve Bank of Australia decided to keep interest rates at 4.35%, which marks the first pause after three consecutive rate hikes this year.
But at this point, we must be careful. Frankly speaking, Australia's recent interest rate hikes cannot be fully counted as a fallen domino. Why do I say that? Because a true domino is pushed to fall by others, meaning a country is reluctantly forced to raise interest rates due to the situation in the Middle East. However, Australia's three previous rate hikes were proactive decisions to prevent their own inflation problems, which had already been building up even before America and Iran started their conflict. The main causes were strong domestic consumption demand, tight production capacity, and a shortage in the labor market, not being dragged down by expensive imports from abroad. Simply put, Australia started its own interest rate hiking cycle. The war in the Middle East was merely a catalyst that made them step on the accelerator two more times, not the primary reason forcing them to do this, which was determined by the country's economic structure.
Australia is an energy export giant. They have strengths in coal and natural gas. So, when there was a war in the Middle East and oil prices skyrocketed, for Japan, it was hell on earth, but for Australia, it was a double-edged sword. The export side made huge profits, but the import side, especially for diesel, gasoline, or jet fuel, had to bear higher costs. This tug-of-war situation makes Australia's situation much more complex than Japan's. In summary, Australia was not pushed to fall by the global situation, but they chose to sit down themselves. They were not in the domino line, but the fact that Australia chose to pause and observe today hints to us that even a strong contender who has been aggressively raising interest rates is starting to show hesitation.
Next is June 18th, in the early morning hours our time, when the Federal Reserve, or Fed, will announce its interest rate decision. And this will be the first official appearance of the new Fed Chairman, Mr. Kevin Watch, which is indeed the most important highlight of this week.
On June 18th as well, the Bank of England will announce its interest rate decision. Most of the market believes that the UK will likely freeze interest rates at 3.75%. But little do they know that within their Monetary Policy Committee, there are deep cracks and strong disagreements. Two committee members are ready to vote to push interest rates up to 4%, while Governor Andrew Bailey believes it's better to gradually assess the impact of energy prices without rushing. However, Chief Economist Mr. Hu might return to vote in favor of another rate hike. Currently, within the Bank of England, a major drama is unfolding, a clash between the hawkish faction that wants to raise rates and the dovish faction that seeks compromise.
That's not all. On June 18th, the Swiss National Bank is also scheduled to announce its interest rate decision. According to a Reuters survey, all 35 economists unanimously predict that Switzerland will maintain interest rates at 0% because the strong Swiss franc acts as a sufficient shield against the impact of energy prices. This places the Swiss National Bank in the group that prefers to observe the situation calmly and leans towards the dovish side. And finally, on June 17th-18th, it's the turn of the Central Bank of Brazil. The market speculates that Brazil will likely cut interest rates by 25 basis points, from 14.5% to 14.25%. But friends, you must understand that even with a rate cut, inflation in Brazil is still much higher than the target set. Therefore, their statement will have to be extremely cautious, one could say a dove with hidden hawk claws.
All these signals clearly indicate that major central banks worldwide are tending to join hands and adopt stricter monetary policies. Indonesia fell as the first domino, Japan followed as the second, and after this, America, England, Switzerland, and Brazil – although each country has its own path – most are either raising interest rates, preparing to raise them, or fiercely debating what to do. This entire picture reinforces the larger logic we discussed before: the Middle East conflict makes oil expensive, expensive oil exports inflation worldwide, and when inflation knocks on each country's door, they are forced to raise interest rates to fight it. As soon as interest rates rise, the economy starts to stagnate and bear heavy burdens. When the economy worsens, asset prices plummet, and when assets fall, capital flees back to the embrace of the US dollar. Everything is perfectly linked in a chain. This is not some conspiracy theory; it is an old play that has been re-enacted for 40 years every time the dollar enters an upward cycle.
Japan's interest rate hike is just the second card to fall on the table, but what's truly frightening isn't how many cards have fallen, but rather that this gambling table is continuously tilting.
So, what will we encounter next? Firstly, Japan's interest rate hike means that the world's last haven of cheap loans has officially collapsed. For decades, large funds flocked to borrow yen with almost no interest to chase and buy assets worldwide. But now, the cost of capital has increased. If these funds collectively decide to unwind their carry trade portfolios, the global risky asset market should prepare for a severe impact.
Secondly, when even Japan has to surrender and raise interest rates, countries in Asia like South Korea, Indonesia, or India, which also rely on energy imports, will inevitably face an even heavier storm of imported inflation. They may have no choice but to reluctantly follow suit and raise interest rates. Such rate hikes in these conditions will further stomp on their economies, crush stock markets, and accelerate capital outflow from the country.
So, what will be the fate of gold next? The dominoes falling in sequence will ultimately point to and reflect only one variable: liquidity. Japan raised interest rates, Indonesia raised interest rates, the Fed is ready to don its hawk spirit at any moment, England is debating what to do, and Australia, though pausing, issued a fierce and firm statement. All these warning signals are pointing in the same direction: money in the global system is about to become more expensive and scarcer.
How does more expensive money negatively affect gold? It means that the opportunity cost of holding gold increases accordingly. You hold gold in your hand, and it gives you no interest, but if you take the same amount of money and deposit it in a bank or buy government bonds, you can now receive a comfortable return of 3%, 4%, or even 5%. When global interest rates were near zero, this difference might have seemed small and unnoticed by anyone, but as soon as major central banks worldwide join hands and pivot to tight monetary policies, this difference will become a glaring light that investors can no longer overlook. This is the main reason explaining why the contraction of global liquidity fundamentally becomes a major negative factor pressuring gold prices.
Let's take a look at the weekly chart. Since gold reached its peak of $5,419 on March 2nd, the overall direction has clearly remained within a downtrend channel. Last week, gold tested support and managed to bounce back, closing the weekly candlestick around $4,217. The characteristic of this candlestick is a red body with a very long lower wick. Such a long wick tries to whisper something to us: that around the important $4,000 mark, people are indeed standing by, ready to buy, no exaggeration.
However, from the perspective of technical indicators like MACD or weekly MACD, the momentum bars remain submerged below the zero line, and there are no clear signs of narrowing. As for the Relative Strength Index or Stochastic, it continues to lie dormant below the 50 level. All of this indicates that, on a weekly overall view, the market trend remains weakly oscillating. Simply put, at least from a large timeframe perspective, the structure favoring the downside has not yet been broken.
But if we delve into the short term, gold has tried to fight back and rebounded for 4 consecutive days, successfully reclaiming all the ground lost last week. Currently, the price is hovering around $4,350, but it has started to move towards a resistance zone where multiple timeframes overlap. Whether it's the 5-week moving average or the middle line of the Bollinger Band tool on the One chart, all are clustered in this area. Therefore, in the short term, it is a point where the price has a very high chance of bouncing up to hit and then being pushed back down for a consolidation. For points to watch, upper resistance will be waiting at the $4,400 and $4,500 levels, while lower support will be at the critical psychological barrier of exactly $4,000 and moving down to the $3,885 - $3,930 zone. This zone was the lowest point during October to November of last year, giving it a memory of buying pressure that previously supported the market.
Returning to the UBS bank report published on June 12th, they pointed out that under the biting pressure of higher bond yields and a stronger dollar, gold prices in the near term might plummet to touch the range of $3,850 to $4,000 per ounce. UBS strategists further explained that momentum indicators are signaling that prices may still have the impetus to flow deeper towards the $3,850-$4,000 area. However, UBS also did not forget to emphasize that for the long-term outlook over the next 12 months, they still view gold positively, reasoning that eventually, interest rates will have to be cut, the dollar will have to weaken, and central banks worldwide will continue to steadily accumulate gold into their reserves.
The implication of this is that the $4,000 figure is a target within the operational radius and has a real chance of occurring. But for the price to break through and fall to see a number starting with 3, this might require more severe and extreme catalysts, such as Fed Chairman Watch coming out with a hawkish roar beyond anyone's expectations, or suddenly another surprise eruption in the Middle East, or a severe sudden contraction of global financial liquidity.
Speaking of this, I recall a classic joke. The story goes that in a kitchen, there was a pot of water on the stove, but no matter how long it boiled, the water wouldn't come to a boil. The first chef came to look and said, "Ah, it's because we didn't close the pot lid tightly enough!" The second chef joined in and argued, "No, it's because the flame is too weak." But in reality, it was neither of those two things. The true cause was that the gas in the tank under the stove was running out. When the flame has no power, no matter how well you try to change the pot lid, it's useless. Our financial and investment markets operate with the same logic. Many people are too focused on the small daily fluctuations of gold prices, oil prices, or exchange rates, mistakenly thinking that the entire problem lies with the pot lid or the flame. But what truly determines the temperature of the water in the pot is the amount of gas in the tank, or rather, the amount of liquidity in the system, and how much of it is left.
The fact that Indonesia rose to raise interest rates, Japan decided to raise interest rates, Australia tried to open a window for potential rate hikes, England is fiercely debating, and Brazil, despite cutting interest rates, maintains extreme caution – these flashing warning signals are trying to shout to us that the gas in the tank of the global economy is steadily diminishing.
And tonight, the Federal Reserve, or Fed, is preparing to announce its interest rate decision for the world to know. This is Mr. Watch's first official step onto the global stage since he took office. All eyes are fixed and awaiting a single answer: will he appear in the guise of a fierce hawk or in the cloak of a peace-loving dove? The market has already bet and weighted in advance that the Fed will definitely cut interest rates. Just observe the behavior of gold prices, the dollar's value, and US government bond yields over the past few days. All of this clearly reflects that the market is trading on the belief that the Fed is about to soften and retreat.
But the big question is, will Mr. Watch really play the role the market wants him to? The economic figures laid out on the table clearly tell a different story. Non-farm payrolls for May surged past expectations. Annual inflation, or CPI, skyrocketed to 4.2%, hitting a 3-year high. Meanwhile, producer inflation, or PPI, jumped 6.5%, the sharpest rise in over 3 years, and annual energy prices soared by over 10%. Mr. Watch surely sees these hot figures more clearly than any of us. Even if deep down he wants to play the role of a good guy, these numbers are a chokehold, leaving him almost no room to soften.
And the most frightening point is that this man remains an enigma to the market. Since he took office, he has never uttered a clear stance for all to see. No one can know whether, as soon as he opens his mouth, he will prescribe strong medicine to quell the problems.
Just imagine, if during the press conference, he were to utter just one classic sentence: "At this moment, we cannot rule out any possibilities." With just that short sentence, hinting that there's still a chance for further interest rate hikes, the dollar would immediately rebound and surge. And the gains that gold painstakingly climbed since the beginning of the week could be completely wiped out and vanish before our eyes overnight.
Trump might bring a gift box of peace and present it to the market, but the one who will ultimately decide whether this gift box can truly be opened and used is the Fed. Just a few words from Mr. Watch's mouth could have more destructive power or create a more severe impact than Trump tweeting 10 times.
Therefore, I want to warn everyone not to rush to any conclusions today. Please be patient and wait until the Fed meeting is completely over. No matter what the outcome, I promise to quickly return to analyze and dissect every word, every phrase, and every hidden signal in Mr. Watch's statement to reveal it to everyone first.
Finally, I reiterate that all content is merely market observation and information sharing, not investment advice. This is Goh. I wish everyone can stand firm and preserve their wealth amidst the fierce waves of the capitalist world to welcome your own golden era. See you in the next clip. Goodbye!