However, it is still unclear whether this high can change the downward trend of gold shock. Since the fourth quarter of this year, the easing of trade frictions has pushed gold prices down to $1454 / oz, far from the six-and-a-half-year high of $1557.25 reached in September. In addition, the Feds interest rate cut expectations fell, the rise of U.S. stocks increased the attractiveness of risk assets, and factors such as the end of the year gold bull profit leaving also made the recent gold look very gloomy.
Fu Xiao, head of global commodity market strategy at BOC International, said in an interview with first financial reporter that he would be influenced by three factors. First, if the fed further cuts interest rates and relaunches quantitative easing, gold prices may return to the upward trend. Second, the outlook for Global trade has a direct impact on gold. Finally, the political upheaval in the United States, including Trumps impeachment investigation and next years general election, will bring continuous fluctuations to the market. He said.
Short term positive push up gold trend
On March 3, President trump of the United States suddenly proposed a plan to impose tariffs on $2.4 billion of French imports, including French cheese, lipstick, handbags and sparkling wine, in retaliation for Frances tax on American technology giants, including Google, Amazon and Facebook.
The day before, trump also said it would resume tariffs on steel and aluminum products exported to the United States by Brazil and Argentina. For a while, concerns about the further deterioration of the global trade situation rose rapidly.
In addition to the deterioration of the trade situation, the recent economic data released by the United States has exacerbated concerns about the countrys economic recession and made gold, a safe haven asset, more attractive.
The latest data from the ISM showed that the factory Purchasing Managers Index (PMI) unexpectedly fell to 48.1 in November, lower than the expected 49.2, which disappointed investors. Weak US manufacturing data has reignited concerns that the US economy is in recession. Market participants believe that the less than expected manufacturing data may stimulate investors expectations of the Feds interest rate cut while raising concerns about US economic growth.
Stimulated by two news, U.S. stocks ended lower on March 3, and the U.S. dollar index also fell the most in a month. Spot gold jumped to $1481 / oz from around $1460 / oz on the 3rd.
Can gold turn the tide
Despite the rapid rise in gold, there is still great uncertainty as to whether it can reverse the decline since the fourth quarter.
In the first three quarters of this year, gold prices, driven by the Federal Reserves interest rate cut, the devaluation of the legal currency, and continued geopolitical and macro risks, kept rising, which attracted market attention. However, in the fourth quarter, the recovery of Global trade situation led to the decline of gold safe haven demand, and gold bulls made profits. According to the data, speculators of the commodity trading futures commission (CFTC) cut their net gold bullion on the Comex to 267000 mainly through long position closing.
Fu Xiao told the first financial reporter that in the short term, in addition to the change of Global trade situation, the factors that led to the recent fall of gold price also included the hint of the Federal Reserve to suspend the interest rate cut; at the same time, since mid September, the Federal Reserve has injected billions of dollars of liquidity into the financial system through short-term repo, which has promoted the continuous rise of US stock market and at the same time, risk capital The rise in the attractiveness of production has also weakened golds upward momentum.
In addition, etfspdr holdings of the worlds largest spot backed gold fell significantly to 32 tons of gold. With the coming of the end of the year, unidirectional speculation has decreased, and gold bulls continue to make profits. Said Fu Xiao.
Data shows that the global gold ETFs with spot gold as collateral started to turn into net outflows in late October with the recent increase of market risk appetite after a sustained net inflow in the third quarter of this year. As of November 15, ETF holdings fell to 2515 tons, the lowest level since September this year.
It is worth noting that a stronger dollar is also a risk in the gold market. Looking forward to the future, gold will be consolidated in the short term due to the fact that the function of dollar safe haven assets sometimes exceeds that of gold.
Three factors influencing gold price in the future
Among the three major factors that will affect gold price in the future, the Federal Reserves monetary policy, the global trade situation and the fluctuation of US political situation, Fu Xiao believes that the Federal Reserves monetary policy is the key.
As expected, the Fed cut interest rates by another 25 basis points to 1.50% - 1.75% in October. The statement issued by the federal reserve after the regular meeting of monetary policy that day was still relatively moderate but began to turn to hawks. The previous statement said that the Fed would take appropriate action to maintain expansion, but this time it has changed to the Fed will continue to monitor the economic outlook and evaluate the appropriate interest rate policy path, which suggests that the Fed is likely not to take action again in the short term. Federal Reserve Chairman Powell said the goal of the rate cut is to guard against continuing risks, including global economic slowdown and trade tensions.
The Federal Reserve usually publishes the matrix after the Federal Open Market Committee (FOMC) meeting in March, June, September and December every year. The most recent fed matrix in September showed that the median interest rate in 2019 fell to 1.875, down from 2.375 in June, as seven Fed members lowered their expectations to 1.625. In addition, the median interest rate in 2020 also fell to 1.875, while the longer-term interest rate remained unchanged at 2.5.
Fu Xiao told the first financial reporter that considering the three 25 basis point interest rate cuts so far this year, market participants believe that the probability of interest rate increase is close to zero from now until the FOMC meeting in March next year announces the interest rate resolution, while the probability of interest rate unchanged is more than 70%.
Although the Fed released signs of turning to hawks at its meeting at the end of October, BOCI believes that the Fed still has some room to cut interest rates given the economic situation in the coming quarters. First of all, the global trade situation is still facing long-term uncertainty; second, the growth rate of Global trade and industrial production has not reached the bottom obviously, which may lead to further weakening of investment and export growth in the United States, and the growth rate of GDP in the third quarter of the United States slowed down to 1.9%. In addition, domestic consumption growth is likely to continue to decline in the coming quarters as declining corporate profits drag down jobs and incomes. Finally, the inflation rate of the United States has been lower than the long-term target of the Federal Reserve by 2%, which shows that the monetary policy space of the Federal Reserve is still relatively sufficient.
Considering the above factors, we believe that the US economic data may face further downward pressure in the future and lead the Federal Reserve to reduce its economic outlook. Fu told first financial reporters that other major central banks, including the Federal Reserve, are expected to restart quantitative easing in view of weak inflation and growth prospects. As the aggressive monetary easing erodes the long-term value of legal currency, the value storage attribute of gold may be enhanced.
On the whole, BOCI believes that gold price will be ready for development again after this round of price reduction. Under the new round of monetary easing and macro concerns, the long-term upward trend of gold price may continue. The Bank of China international position index of gold (the relative value of net position / open position) is 2.9, which is lower than the historical extreme value of 5, indicating that the net long-term gold may still have room to rise.
In fact, central banks of all walks of life are still accelerating the pace of gold hoarding, and gold has become an important target of diversified investment of central banks in emerging markets. According to the latest world gold association data, ten years after the global financial crisis, by November 2019, the official gold reserve of the global central bank has reached 34500 tons, and the holding volume is expected to continue to grow next year. It is worth noting that almost all of this growth has come from purchases by central banks in emerging markets. Russias central banks gold reserves expanded steadily to 2241 tons in November, maintaining the sixth place among the worlds central banks gold reserves. On the other hand, data from the peoples Bank of China show that Chinas gold reserves continued to rise this year and increased to 1948.3 tons at the end of November. Source: First Financial Editor: Wang Xiaowu NF
In fact, central banks of all walks of life are still accelerating the pace of gold hoarding, and gold has become an important target of diversified investment of central banks in emerging markets.
According to the latest world gold association data, ten years after the global financial crisis, by November 2019, the official gold reserve of the global central bank has reached 34500 tons, and the holding volume is expected to continue to grow next year. It is worth noting that almost all of this growth has come from purchases by central banks in emerging markets.
Russias central banks gold reserves expanded steadily to 2241 tons in November, maintaining the sixth place among the worlds central banks gold reserves. On the other hand, data from the peoples Bank of China show that Chinas gold reserves continued to rise this year and increased to 1948.3 tons at the end of November.