Gold hit the biggest one month decline in three years. Whats next?

category:Finance
 Gold hit the biggest one month decline in three years. Whats next?


Novel coronavirus pneumonia vaccine will accelerate in the short term and the US dollar index will be adjusted by a hedge buying. Gold prices will undergo some adjustment in the near future. Gold prices have been nearly 8% when they hit a historical high of $2075. The consultation on the new round of stimulus package led the gold price to rebound more than 1% on Thursday (1), return to the 1910 dollar mark, or hint at a short-term pullback. end.

If gold is bullish for a long time, it will be a good buying opportunity after gold callback. Wells Fargo believes that the fall in gold prices in the past month is mainly due to the relatively strong performance of the US dollar, which is a good buying opportunity in the current gold market. It is expected that the gold price will rise to 2200-2300 US dollars / oz by the end of 2021.

The scenario of low interest rates pushing up gold prices seems to be on the air again

After the 2008 crisis, countries also choose to increase monetary policy stimulus to reduce the impact of the subprime mortgage crisis on the financial system. The Federal Reserve started the journey of quantitative easing (QE), and began to implement QE1 in November 2008. It also lowered the federal funds rate to 0-0.25% in December, which is consistent with the current level of the federal funds rate. At that time, gold prices began to accelerate, rising from an annual low of $682 / oz in October of that year to $1921.1/oz in September 2011. In the past three years, gold prices have risen by 181.6%, which experienced the QE1 and QE2 of the Federal Reserve. After 2011, the Fed maintained interest rates close to zero and continued to push ahead with qe3 and qe4. Since 2014, the European Central Bank and the Bank of Japan have successively implemented negative interest rate policies, and the global scale of negative interest rate bonds has increased rapidly, further reducing the opportunity cost of holding gold.

On the contrary, many central banks, including the Federal Reserve, have been stressing that they should maintain easy interest rates for a long time to get through the crisis. In early September, the Federal Reserve Open Committee (FOMC) voted to keep interest rates at 0% - 0.25%, and said it would keep interest rates low until inflation rebounded.

Fed officials have also revealed in recent speeches that it may take about two to three years for low interest rates to continue. Novel coronavirus pneumonia (RobertKaplan), Dallass Federal Reserve Chairman, said Wednesday (30) that keeping interest rates at close to zero for three years may be appropriate, helping the us recover from the new crown pneumonia pandemic. Kaplan,

Moreover, Kaplan also warned that the current easing measures taken by the Federal Reserve are unprecedented, and the work of the Federal Reserve for the recovery of the U.S. economy is limited. He thinks it is necessary to obtain more stimulus from Congress to make up for the decline in income caused by the epidemic, because it is very unusual for both consumer income and consumer spending to maintain a high degree of flexibility We will not be able to get financial support, which will bring down the risk of the economy.

The timing of US fiscal stimulus plan will affect the gold trend

Next, whether the gold price will continue to fluctuate or start a new round of upward trend depends on the sincerity of the US Treasury Departments new round of stimulus plan.

At present, the financial stimulus plan to deal with the epidemic situation has been under negotiation, but the results are not obvious. House Speaker Nancy Pelosi and Treasury Secretary Steven mnuchin failed to reach a consensus on a stimulus package in a meeting for more than 90 minutes on Wednesday. The two will continue to discuss and try to work out a plan that will pass both houses of Congress.

The talks have led to a consensus between Republicans and Democrats on direct subsidies, small business loans and aviation aid, but they still need to resolve the differences between state and local governments on corporate aid and corporate debt protection. At present, the two sides are in a stalemate over the amount of stimulus package. The size of the rescue bill proposed by the House Democratic Party has dropped from the initial $3.4 trillion to the current $2.2 trillion, but the Republican Party is only prepared to provide a package with a ceiling of $1.5 trillion to deal with the Democratic Partys proposal.