The Godfather of Emerging Markets is firmly bullish
Influenced by the global economic slowdown, deteriorating trade situation and rising geopolitical risks, gold has again won the favor of market funds this year, starting near $1250/ounce at the beginning of the year, breaking through $1560/ounce at one time, and setting a new high since 2013.
Under the background of global macroeconomic uncertainty, the demand for gold by central banks is increasing. The demand report issued recently by the World Gold Council pointed out that the net purchasing amount of central banks worldwide in July was 13.1 tons, and the cumulative net purchasing amount has exceeded 400 tons since the beginning of the year, the highest level since 2010. According to the report, the reserve currency risk represented by the US dollar is an important consideration for central banks to allocate gold. About 40% of central banks in emerging markets and developing economies said that the expected changes in the international monetary system were related to their decision to hold gold, and there were plans to continue to hold more gold in the next 12 months. The latest data show that by the end of August, Chinas gold reserves had reached 62.45 million ounces, an increase of 190,000 ounces from 62.26 million ounces in July, the ninth consecutive month for the Central Bank of China to increase its gold holdings.
Mark Mobius, a former chairman of Franklin Dumpton Emerging Markets Group and known as the Godfather of Emerging Markets, is optimistic about the future trend of gold prices, arguing that gold is an important choice for investors in the context of interest rate cuts by the global central bank, as the supply of future currencies will increase dramatically. Almost all central banks are trying to lower interest rates and inject capital into the financial system. If we count encrypted currencies, no one knows how much money is in circulation. He said.
McPuss advises investors to allocate 10% of their portfolio to gold, especially if the dollar is likely to weaken in the future. He believed that the Trump administration would try to weaken the exchange rate of the dollar against other currencies, and that the end result might be a currency war. Because once the United States does that, other currencies will also choose to depreciate. In the final analysis, gold is a means of exchange and, to some extent, a stable currency.
Trend of Gold Futures in Recent Month
Short-term adjustment risks remain
With international gold prices reaching a six-year high, investors have actively entered the market through over-the-counter products, futures contracts and ETFs since August. Global gold trading volume has continued to rise, averaging $219 billion a day, 92% higher than the same period last year, and the implied volatility has remained at a three-year high.
Data released by the Commodity Futures Trading Commission (CFTC) on Friday showed that speculatorsnet long positions in gold increased by 3709 to 30547 in the week ending September 3, the highest since 2017.
But with short-term price fluctuations, market sentiment has undergone subtle changes. Bart Melek, head of commodity strategy at Dominican Securities in Toronto, said that the overall rebound in European and American stock markets, rising yields on US Treasuries and a shift in risk appetite were weighing down gold prices due to factors such as improved trade conditions. At present, there are many gold positions, so it is not surprising to see some profitable situations. Due to the one-sided market forces, there is a need to adjust the trend, continue to pay attention to the macroeconomic and trade situation and Fed policy expectations, and there is still the possibility of downward revision in the short term.
Last weeks speech by Federal Reserve Chairman Powell in Switzerland further dampened the bullsflames. Similar to the statement made at the annual meeting of the Jackson Hall Bank in August, he believed that the U.S. economy was doing well and that the most likely prospect was still moderate growth, with strong labor markets and inflation moving toward the target of 2%. As we move forward, the U.S. economy will not fall into recession in the future.
Only a week before the Feds September interest rate meeting, the CME interest rate watcher FedWatch showed that the probability of the Fed cutting interest rates by 25 basis points has exceeded 90%. First Financial Journalists recent speeches and interviews with Federal Reserve officials found that FOMC may still be as divided as in July, but the possibility of more than half of the negative votes is very small, the majority of pigeons and centrists will continue to vote in favor of interest rate cuts.
Carl Tannenbaum, executive vice president and chief economist of North American Trust Bank, argues that the slowdown is providing room for the Fed to cut interest rates in September, but it is unrealistic to cut interest rates by 50 basis points beyond expectations, which is not conducive to gold prices because market pricing already reflects 25 basis points of interest rate cuts and investors can pay attention to them. The Feds forward-looking guidelines and bitmap are likely to choose to make policy choices in the future by continuing to observe economic data.
Although the trend of gold price is uncertain in the short term, the institutions are generally optimistic about gold prospects. Citigroup pointed out in its research paper that although it has risen to multi-year highs, taking into account the future trade situation, easing expectations of global central banks, reversal of the yield curve of U.S. Treasury bonds and high government debt, risks such as the political situation in the euro zone, Britain and Italy will support gold prices. Bank of Farba expects the Feds easing cycle to bring gold prices above $1600 an ounce in the first quarter of 2020.