Chart: Comex gold price has been weakening since August (USD / oz)
Data source: wind database
First of all, it is true that major countries such as China, the United States and Russia are developing new coronal vaccines. However, it will take a long time for the vaccine to be developed from research and development to full vaccination. Even if the United States has become the first country in the world to truly eliminate the new epidemic situation due to technological conditions, while there are still various problems in the development, transportation and distribution of vaccines in Europe, China and other emerging market countries, the global wide vaccination will obviously lag behind the United States, and the United States will not provide support to the world before its domestic popularization. This means that countries other than the United States are likely to continue to be affected by the long tail epidemic for a considerable period of time, which is expected to run through 2021. Unless the United States can also achieve internal circulation, the unilateral economic recovery in the United States will face a shortage of products and raw materials, accelerating inflation. High inflation and gold are often good friends..
Second, although the Federal Reserve implicitly expressed the importance of YCC and MMT in the interest rate meeting in November, it is an indisputable fact that the scale of the Feds expansion is. At present, the size of the Feds balance sheet is 7.29 trillion, up 73.16% from 4.21 trillion at the end of February, and it is expected to exceed $8 trillion by the end of the year. A large amount of US dollars may be used as a direct driver of the rising inflation pressure in the United States. The only condition that can be avoided is that the US stocks and other financial assets continue to maintain a slow bull and continue to play the role of reservoir, so as to avoid a large number of over issuance of money and financial entities to push up inflation. This is similar to what happened after 2008.
Chart: the last round of QE did not cause hyperinflation, mainly because financial assets acted as reservoir
Data source: wind database
Thirdly, the core reason for gold to continue to rise in the first half of 2021 is the correlation between the actual yield of US Treasury bonds and the Comex gold price.
For a long time, the actual yield of us 10-year Treasury bonds has shown a significant negative correlation with Comex gold price (as shown in the figure below). Recently, both of them have declined at the same time, which is mostly caused by market sentiment factors, with short-term nature. In the medium and long term, both the encouraging inflation overshoot and average inflation targeting adopted by the Federal Reserve mean that inflation will rise substantially in 2021. At present, the market has widely accepted the expectation that the US CPI will exceed 4% next year. If the vaccine is widely vaccinated in the United States, the markets attitude towards us debt will also change, which will further depress the yield of US debt (hedge against the rise of long-term interest rate brought by economic recovery). Under comprehensive factors, the real yield of US debt in the next 10 years will still face downward pressure. If the logical framework between the gold price and the actual yield of US Treasury bonds is not broken, there will still be upward expectations for gold.