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Market News Gold and silver have lost all gains this year and will they stabilize in the short term? There are also investors who are bearish!
Gold and silver have lost all gains this year and will they stabilize in the short term? There are also investors who are bearish!
The gold market is experiencing its worst weekly performance in about a year. "The current market is entering a superimposed state of factual rapid monetary tightening and tightening expectations peaks. In the short term, panic may continue to dominate the market, so further declines in gold cannot be ruled out." said Lin Xinjie, precious metals analyst at Shenyin Wanguo Futures.
2022-05-16
11425
The gold market is experiencing its worst weekly performance in about a year. "The current market is entering a superimposed state of factual rapid monetary tightening and tightening expectations peaks. In the short term, panic may continue to dominate the market, so further declines in gold cannot be ruled out." said Lin Xinjie, precious metals analyst at Shenyin Wanguo Futures.
On Friday, spot gold once fell by more than 1%, falling below the $1,800/oz mark, and followed silver to lose all gains this year. Not only did gold prices end the week with a 3.9% loss, it was the fourth straight weekly decline. The gold market has come under intense selling pressure as the U.S. dollar nears its highest level in 20 years. While some analysts say gold appears to be oversold, it still faces some challenging headwinds.
What causes gold to run weakly?
Zhan Dapeng, senior analyst of precious metals at Everbright Futures, told reporters that this week the United States released two important economic data in a row. First, the CPI in April increased by 8.3% year-on-year, lower than the previous value of 8.5%, but still higher than the expected value of 8.1%. %; second, the April PPI data increased by 11% year-on-year, which was also lower than the previous value of 11.2% and higher than the expected value of 10.7%. The significance of this data combination is undoubtedly to show the market that inflation is initially "under control", but it is still running at a high level, and the Fed will still work hard to control inflation. Therefore, when the Fed's interest rate hike expectations increased rapidly after the results were announced, Powell also made remarks that the Fed was acting quickly to lower inflation. Although 75 basis points was not considered, it would still consider raising interest rates by 50% at the June and July interest rate meetings. basis point. For gold, inflation has not continued to rise, but the pace of interest rate hikes has not changed much, which means that the US real interest rate is expected to rise further. Recently, we have also noticed that the US 10-year TIPS yield has turned positive and there is an expectation that it will continue to rise. , judging from the strong negative correlation between the historical TIPS yield and gold, it also has a strong suppressive effect on gold. In addition, the Fed's "no turning back" hawkish style has caused great turbulence in the financial market, especially the US stock market has entered a technical bear market, the VIX index has rebounded sharply, the US dollar index has performed exceptionally strong, and liquidity tensions have reappeared. Looking back on US stocks in March 2020 The impact on the gold market at the time of the crash also does not support gold going higher.
"Considering that the April non-farm payroll report showed that the U.S. job market remained hot, and the problem of recruitment difficulties continued to be prominent, the wage-inflation spiral continued to worry about, even if inflation peaked year-on-year in the second quarter due to the growth of the base number, inflation may remain at a high level for a long time. Inflation The performance further supports the Fed's expectation of maintaining a 50bp interest rate hike in June and July, and the Fed will start to shrink its balance sheet in June. From May to July, the market will enter a superimposed state of de facto rapid monetary tightening and tightening expectations peaks. With the rise of economic recession expectations, panic prompted funds to flock to cash, the dollar continued to rise, and gold continued to bleed." Lin Xinjie said.
"From the perspective of market sentiment, the current conflict between Russia and Ukraine continues, and global geopolitical risks are intensifying; and due to the recent rapid rise in US bond yields, the global financial market has gained valuations, and the stock market has fallen sharply, driving the general decline in commodities and market risk appetite. The rapid fall, inflation expectations also significantly corrected. Under the combination of rising nominal interest rates but falling inflation expectations, the recent strengthening of real interest rates has depressed the valuation of gold.” said Wang Yanqing, senior researcher at CITIC Futures Nonferrous Metals.
The reporter of Futures Daily noticed that from the perspective of market funds, the CFTC gold net long position has declined significantly since the beginning of March, and it is close to the low point in 2021, and the daily position of gold ETF has also turned down recently. Market funds There is a lot of selling pressure on the surface.
What are the factors affecting gold this year? What is the trading logic of investors?
In Zhan Dapeng's view, there are two main factors affecting the trend of gold since the beginning of this year, one is the geographical factors of Russia and Ukraine, and the other is US inflation (expected) and the resulting Fed monetary tightening expectations. In the first quarter, the geopolitical position of Russia and Ukraine undoubtedly accounted for the main transaction logic. From the war between Russia and Ukraine to the occurrence of military operations, actions beyond market expectations also further pushed up the trend of gold prices; but since April, with the Russian-Ukrainian war From the "blitzkrieg" to the "tug-of-war", the market has also experienced the most severe sanctions and counter-sanctions stages, and the most tense moment has passed. As a result, the trading logic of Russia and Ukraine has begun to gradually transfer to the Fed's monetary tightening expectations, or The geopolitical factors of Russia and Ukraine are no longer the mainstream trading logic of the market for the time being, and they have begun to turn to expectations of the Federal Reserve raising interest rates and shrinking its balance sheet.
Real interest rates are also one of the factors that affect the trend of gold, and real interest rates are composed of nominal interest rates and inflation expectations in the market. Under normal circumstances, the price of gold and the real interest rate show a negative correlation trend, and the negative correlation exceeds 90%. The real interest rate can be regarded as the anchor for gold pricing.
"The US dollar index, although the US dollar index has a weak correlation with the trend of gold in the long-term, but in the short term, gold and the US dollar have a negative correlation." Wang Yanqing said, the other is the bulk market. Because gold has certain commodity properties, the market prices of all commodities, such as copper, sometimes coincide with the trend of gold, supporting the price of gold from the inflation side.
Lin Xinjie believes that considering that the market's pricing of the pace of interest rate hikes is approaching its peak, from the perspective of the interest rate market, the market expects more than 10 interest rate hikes during the year (25bp/time), and it is difficult for the Fed to convey a more hawkish tone than the current market expectations. Although the market has speculation about the possibility of raising interest rates by 75bp, if inflation does peak in the second quarter, the possibility of a more aggressive interest rate hike path will be reduced. Recently, Fed officials also expressed reservations about raising interest rates by 75bp. .
Where will the gold price outlook go?
At present, the performance of gold prices is still weak, and the US dollar index is strong. Recently, the US dollar index has exceeded 105, which is a high level in decades. This not only suppresses the price of gold, but also affects the valuation of major assets denominated in US dollars. significant negative effects. And if the Fed's later monetary policy is more aggressive, it does not rule out that the dollar index will continue to rise. However, the world is currently facing the risk of high inflation, and this risk is difficult to suppress by raising interest rates. Excessive interest rate hikes may impact the financial market, and from the current global economic cycle, the macro economy has already experienced a certain downturn. Risk, the extent of stagflation in the later period may intensify, and there is a certain risk of recession. Gold, as a safe-haven asset, also has a certain allocation value. "In the short term, the price of gold is affected by the strong dollar and runs weakly, but in the long run, once the U.S. economic growth slows down and the Fed's hawkish attitude eases, gold still has the value of multiple allocations under the blessing of high inflation and low growth. "Wang Yanqing said.
Regarding the future of gold, Zhan Dapeng believes that, first of all, the focus is on whether there is an expectation that inflation in the United States will continue to rise. Judging from the U.S. CPI and PPI data released in April, inflation has been initially contained. At this time, the interest rate hike policy is still running into the market. The U.S. real interest rate has quickly turned positive and moved higher, which is obviously not good for gold. From the Fed's statement Looking at the bearishness may be in the medium term, and even if there is a rebound in the short term, it will not be too ideal. Second, focus on whether there are other factors supporting inflation expectations continue to rise. The current conflict between Russia and Ukraine continues. Although from the current market performance, as the cost of energy and electricity in Europe has declined, the market has weakened the geopolitical impact of Russia and Ukraine, but the potential energy and food crisis derived from the geography cannot be effectively resolved for the time being. , there is still the possibility of fermentation in the later stage. Investors should continue to pay attention to this geographical factor, which will also become the key to whether the gold price can change the current weak trend in the later stage.
In Lin Xinjie's view, in terms of rhythm, during the period of rapid monetary tightening from June to July, if the inflation data can fall back, the Federal Reserve may release a marginal dovish signal, the market's marginal tightening expectations may peak, and economic growth slows down , long-term inflation may be at a high level, and long-term support factors such as geo-risks are clear, gold may try to stabilize in the next period of time.
However, one investor said inflation would remain high, forcing the Fed to continue raising interest rates sharply. Ultimately, real interest rates will move higher and it is only a matter of time before gold falls below $1,800. Gold prices are expected to fall below $1,700 by the end of the year.
Article source: Futures Daily
On Friday, spot gold once fell by more than 1%, falling below the $1,800/oz mark, and followed silver to lose all gains this year. Not only did gold prices end the week with a 3.9% loss, it was the fourth straight weekly decline. The gold market has come under intense selling pressure as the U.S. dollar nears its highest level in 20 years. While some analysts say gold appears to be oversold, it still faces some challenging headwinds.
What causes gold to run weakly?
Zhan Dapeng, senior analyst of precious metals at Everbright Futures, told reporters that this week the United States released two important economic data in a row. First, the CPI in April increased by 8.3% year-on-year, lower than the previous value of 8.5%, but still higher than the expected value of 8.1%. %; second, the April PPI data increased by 11% year-on-year, which was also lower than the previous value of 11.2% and higher than the expected value of 10.7%. The significance of this data combination is undoubtedly to show the market that inflation is initially "under control", but it is still running at a high level, and the Fed will still work hard to control inflation. Therefore, when the Fed's interest rate hike expectations increased rapidly after the results were announced, Powell also made remarks that the Fed was acting quickly to lower inflation. Although 75 basis points was not considered, it would still consider raising interest rates by 50% at the June and July interest rate meetings. basis point. For gold, inflation has not continued to rise, but the pace of interest rate hikes has not changed much, which means that the US real interest rate is expected to rise further. Recently, we have also noticed that the US 10-year TIPS yield has turned positive and there is an expectation that it will continue to rise. , judging from the strong negative correlation between the historical TIPS yield and gold, it also has a strong suppressive effect on gold. In addition, the Fed's "no turning back" hawkish style has caused great turbulence in the financial market, especially the US stock market has entered a technical bear market, the VIX index has rebounded sharply, the US dollar index has performed exceptionally strong, and liquidity tensions have reappeared. Looking back on US stocks in March 2020 The impact on the gold market at the time of the crash also does not support gold going higher.
"Considering that the April non-farm payroll report showed that the U.S. job market remained hot, and the problem of recruitment difficulties continued to be prominent, the wage-inflation spiral continued to worry about, even if inflation peaked year-on-year in the second quarter due to the growth of the base number, inflation may remain at a high level for a long time. Inflation The performance further supports the Fed's expectation of maintaining a 50bp interest rate hike in June and July, and the Fed will start to shrink its balance sheet in June. From May to July, the market will enter a superimposed state of de facto rapid monetary tightening and tightening expectations peaks. With the rise of economic recession expectations, panic prompted funds to flock to cash, the dollar continued to rise, and gold continued to bleed." Lin Xinjie said.
"From the perspective of market sentiment, the current conflict between Russia and Ukraine continues, and global geopolitical risks are intensifying; and due to the recent rapid rise in US bond yields, the global financial market has gained valuations, and the stock market has fallen sharply, driving the general decline in commodities and market risk appetite. The rapid fall, inflation expectations also significantly corrected. Under the combination of rising nominal interest rates but falling inflation expectations, the recent strengthening of real interest rates has depressed the valuation of gold.” said Wang Yanqing, senior researcher at CITIC Futures Nonferrous Metals.
The reporter of Futures Daily noticed that from the perspective of market funds, the CFTC gold net long position has declined significantly since the beginning of March, and it is close to the low point in 2021, and the daily position of gold ETF has also turned down recently. Market funds There is a lot of selling pressure on the surface.
What are the factors affecting gold this year? What is the trading logic of investors?
In Zhan Dapeng's view, there are two main factors affecting the trend of gold since the beginning of this year, one is the geographical factors of Russia and Ukraine, and the other is US inflation (expected) and the resulting Fed monetary tightening expectations. In the first quarter, the geopolitical position of Russia and Ukraine undoubtedly accounted for the main transaction logic. From the war between Russia and Ukraine to the occurrence of military operations, actions beyond market expectations also further pushed up the trend of gold prices; but since April, with the Russian-Ukrainian war From the "blitzkrieg" to the "tug-of-war", the market has also experienced the most severe sanctions and counter-sanctions stages, and the most tense moment has passed. As a result, the trading logic of Russia and Ukraine has begun to gradually transfer to the Fed's monetary tightening expectations, or The geopolitical factors of Russia and Ukraine are no longer the mainstream trading logic of the market for the time being, and they have begun to turn to expectations of the Federal Reserve raising interest rates and shrinking its balance sheet.
Real interest rates are also one of the factors that affect the trend of gold, and real interest rates are composed of nominal interest rates and inflation expectations in the market. Under normal circumstances, the price of gold and the real interest rate show a negative correlation trend, and the negative correlation exceeds 90%. The real interest rate can be regarded as the anchor for gold pricing.
"The US dollar index, although the US dollar index has a weak correlation with the trend of gold in the long-term, but in the short term, gold and the US dollar have a negative correlation." Wang Yanqing said, the other is the bulk market. Because gold has certain commodity properties, the market prices of all commodities, such as copper, sometimes coincide with the trend of gold, supporting the price of gold from the inflation side.
Lin Xinjie believes that considering that the market's pricing of the pace of interest rate hikes is approaching its peak, from the perspective of the interest rate market, the market expects more than 10 interest rate hikes during the year (25bp/time), and it is difficult for the Fed to convey a more hawkish tone than the current market expectations. Although the market has speculation about the possibility of raising interest rates by 75bp, if inflation does peak in the second quarter, the possibility of a more aggressive interest rate hike path will be reduced. Recently, Fed officials also expressed reservations about raising interest rates by 75bp. .
Where will the gold price outlook go?
At present, the performance of gold prices is still weak, and the US dollar index is strong. Recently, the US dollar index has exceeded 105, which is a high level in decades. This not only suppresses the price of gold, but also affects the valuation of major assets denominated in US dollars. significant negative effects. And if the Fed's later monetary policy is more aggressive, it does not rule out that the dollar index will continue to rise. However, the world is currently facing the risk of high inflation, and this risk is difficult to suppress by raising interest rates. Excessive interest rate hikes may impact the financial market, and from the current global economic cycle, the macro economy has already experienced a certain downturn. Risk, the extent of stagflation in the later period may intensify, and there is a certain risk of recession. Gold, as a safe-haven asset, also has a certain allocation value. "In the short term, the price of gold is affected by the strong dollar and runs weakly, but in the long run, once the U.S. economic growth slows down and the Fed's hawkish attitude eases, gold still has the value of multiple allocations under the blessing of high inflation and low growth. "Wang Yanqing said.
Regarding the future of gold, Zhan Dapeng believes that, first of all, the focus is on whether there is an expectation that inflation in the United States will continue to rise. Judging from the U.S. CPI and PPI data released in April, inflation has been initially contained. At this time, the interest rate hike policy is still running into the market. The U.S. real interest rate has quickly turned positive and moved higher, which is obviously not good for gold. From the Fed's statement Looking at the bearishness may be in the medium term, and even if there is a rebound in the short term, it will not be too ideal. Second, focus on whether there are other factors supporting inflation expectations continue to rise. The current conflict between Russia and Ukraine continues. Although from the current market performance, as the cost of energy and electricity in Europe has declined, the market has weakened the geopolitical impact of Russia and Ukraine, but the potential energy and food crisis derived from the geography cannot be effectively resolved for the time being. , there is still the possibility of fermentation in the later stage. Investors should continue to pay attention to this geographical factor, which will also become the key to whether the gold price can change the current weak trend in the later stage.
In Lin Xinjie's view, in terms of rhythm, during the period of rapid monetary tightening from June to July, if the inflation data can fall back, the Federal Reserve may release a marginal dovish signal, the market's marginal tightening expectations may peak, and economic growth slows down , long-term inflation may be at a high level, and long-term support factors such as geo-risks are clear, gold may try to stabilize in the next period of time.
However, one investor said inflation would remain high, forcing the Fed to continue raising interest rates sharply. Ultimately, real interest rates will move higher and it is only a matter of time before gold falls below $1,800. Gold prices are expected to fall below $1,700 by the end of the year.
Article source: Futures Daily
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