So, what makes the gold suddenly stop soaring? Can the suppressed gold price return blood?
1. Real interest rate
Golds relative attractiveness to other safe haven assets, especially US Treasury bonds, determines the price of gold. The measure of this relative attractiveness is real interest rates. The main difference between gold and US Treasury bonds is that gold provides value preservation in the face of inflation, while US Treasury bonds provide income through their coupon. Therefore, the real interest rate, that is, the difference between nominal interest rate and expected inflation, is the difference between treasury bond yield and gold yield. If real interest rates fall, whether through lower nominal yields or higher inflation expectations, gold will become more attractive.
2. US dollars
As the world reserve currency, the US dollar can effectively measure the value of metal currency on behalf of paper money. In most cases, there is a negative correlation between the dollar and gold. In the period of political and financial uncertainty, gold and the US dollar are regarded as safe storage means of value, and they have alternative properties in function. The strength of the dollar has made gold relatively expensive for holders of other currencies.
In the first half of this year, the U.S. fiscal stimulus was launched, and cheap liquidity gradually put pressure on the US dollar. The dollar index once fell to near $92. Recently, a new round of US stimulus plan was blocked, so the dollar hit the bottom and rebounded. Against the background of weakening easing expectations, it is not surprising that gold prices fell sharply.
3. Hedging demand
Compared with paper investments such as cash, stocks and bonds, gold is a tangible asset, which tends to maintain its real value for a long time due to limited supply. As a result, investors see gold as the ultimate safe haven commodity. Whenever people feel fear and uncertainty about the economic outlook, we will see a rebound in gold prices.
Recently, political risks such as Sino US frictions have continuously boosted the demand for safe haven, and to a certain extent, also boosted the rise of gold prices. However, it should be noted that the new epidemic situation is the focus of global market attention. At present, there are six vaccines with rapid development progress, which are entering the second or third stage. According to public information novel coronavirus vaccine research and development can be traced back to January 2020, the first batch of vaccine safety test in March 2020.
In addition, the global goal is to develop an effective vaccine by early 2021. Oxford candidate vaccine researchers have announced that if the third phase of the trial is successful, the vaccine could be put into emergency use as early as September. If the vaccine is successfully developed according to optimistic estimation, it is self-evident that the economic recovery will suppress the gold price.
4. Gold non-commercial net bulls hit the top and went down
From the perspective of trading, the current long trading of gold presents a more crowded feature, which, to a certain extent, will also lead to the short-term adjustment of gold price. According to reports, State Streets largest gold ETFs pdrgold shares suffered a $382 million outflow on Friday, August 7, the largest withdrawal since March.
AVIC Securities pointed out that gold non-commercial net long hit the top and went down, indicating the possibility of short-term adjustment of gold price. Non commercial positions are speculative positions held mainly by hedge funds. The holders of non-commercial positions, i.e. smart money, are often very sensitive to the factors of price changes, so the non-commercial net long positions have a certain leading significance for the gold price.
How will gold perform in the later period?
AVIC Securities pointed out that the idea of gold allocation is to bring gold into the portfolio, rather than simply long gold. The friction provoked by the US side is likely to intensify in the future. Under such circumstances, it is very necessary for equity investment institutions to construct 10% to 20% gold exposure by using gold ETFs and gold stocks.
However, at the same time, the gold price has reached record highs, and the reversal of some situations will lead to the rapid fall of gold price. AVIC securities suggests investors pay attention to three signals:
1. The hawkish attitude of the Fed. If the vaccine is successfully developed and put into the market faster than expected, and the U.S. economy rebounds rapidly, the Federal Reserve will start the downsizing process. If the US federal funds rate starts to rise, nominal interest rates may rise faster than inflation, then gold prices will be hit hard.
2. The anti globalization led by the United States and the reversal of Sino US friction. If trump is not re elected, Biden is elected, and the United States partially abandons local protectionism and trade war, and Sino US relations ease, then inflation may also be curbed.
3. A possible sell-off by the central bank. In the short term, the surge in gold prices is increasing the proportion of gold in most central bank reserves. As a result, any country facing a shortage of foreign exchange to manage its balance of payments is now likely to liquidate metals.
China Merchants Bank believes that the recent adjustment of precious metals is mainly due to the higher than expected increase of non farm employment data in July released by the United States on Friday night, the real interest rate of US debt was revised, and the low rebound occurred, while the gold price fell. In addition, gold experienced a sharp rise in the early stage, which resulted in a serious overbought in technology, and the long trading was also relatively crowded, and there was a demand for callback.
But they dont think the bull market in gold is over, and the current correction is normal after the rally. It is expected that the first support position below is $1930, and if lost, it may fall to the support range of $1860-1900. On the trend, the US dollar real interest rate is expected to continue to decline under the joint effect of the Feds policy hand and the gradual recovery of inflation center.