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Market News The prospect of the Fed’s interest rate hike erases the positive inflation, and institutions are bearish on the price of gold at the end of the year or fall to $1750
The prospect of the Fed’s interest rate hike erases the positive inflation, and institutions are bearish on the price of gold at the end of the year or fall to $1750
In early trading in Asia on November 19, gold prices fluctuated within a narrow range. While the bulls are trying to regain the 1860 mark, a report from Capital Economics stated that although the level of inflation is worrying, as the Fed begins to tighten its monetary policy stance, the price of gold is unlikely to surge in the next few years. At the same time, two Fed officials spoke separately on Thursday, acknowledging that the impact of inflation is broader, and that the Fed may raise interest rates as early as mid-2022.
2021-11-19
8844
On Friday (November 19) in Asian markets in early trading, gold prices fluctuated within a narrow range. As the bulls try to regain the 1860 mark, a report from Capital Economics stated that despite the worrying level of inflation, as the Fed begins to tighten its monetary policy stance, gold prices are unlikely to surge in the next few years. At the same time, two Fed officials spoke separately on Thursday, acknowledging that the impact of inflation is broader, and that the Fed may raise interest rates as early as mid-2022.
Kieran Tompkins, assistant economist at Capital Economics, said: “Although we predict that high inflation in the United States will last longer than market expectations, this ultimately means investors are demanding higher inflation compensation. But we also believe that the Fed’s stance of moderate monetary policy tightening will raise the real yields of US Treasury bonds. This should be enough to cause the price of gold to fall in the next few years.”
During periods of high inflation, gold does have a history of performing well. But the key to the success of gold prices lies in how persistent the long-term price pressure is.
Tompkins said: “Although in the past 15 years, gold has performed very well as an inflation hedge, even surpassing the rise in the US Consumer Price Index (CPI), but in a relatively short period of time, the reliability of gold It has not been high. This is because it depends on whether short-term high inflation and rising inflation will have an impact on long-term expectations of inflation and interest rates. "
Soaring inflation pushes gold upward
As the global economy reopened, inflation began to soar. In the United States, housing prices accelerated in October, reaching their highest level in 31 years, at an annual rate of 6.2%.
Tompkins said: "Rising inflation is usually bad news for financial markets. As far as stocks are concerned, higher inflation may increase the value of earnings, but this effect is usually discounted by investors at a higher rate. Now the value of future earnings is offset. Investors believe that rising inflation will be accompanied by the central bank's tightening of monetary policy. The situation with bonds is similar, because as inflation rises, the purchasing power of bonds in future cash flows is eroded.
This concern about inflation made gold prices once again become the focus of attention this fall. The price of gold rebounded above US$1,800 per ounce, while analysts’ current target is US$1,900 per ounce.
Tompkins pointed out: “Gold is considered an inflation hedge. It can also be compared to a zero-coupon bond that can be held indefinitely because gold actually has a fixed nominal yield of 0%. The expectation of the actual monetary policy stance remains unchanged, and its price will not be adjusted downwards in order to adapt to higher inflation and tightening policy expectations."
In addition, asset prices are also affected by market sentiment. He added: "If most market participants believe that an asset can maintain its value during periods of high inflation, then market demand will rise in this case. As a result, collective beliefs raise prices, making them effective inflation. Hedging tool."
Temporary inflation expectations put pressure on gold
The report pointed out that when the surge in inflation proves to be short-term, the reliability of gold as an inflation hedging tool will be questioned. The report pointed out that this is the basic situation that may arise next year.
Tompkins said: “Because the increase in inflation this year has so far been generally described as temporary, the real yields of U.S. long-term Treasury bonds have not risen. In fact, these indicators have even declined slightly since the beginning of the year, reflecting investor expectations. The Fed does not need to substantially tighten monetary policy to bring inflation back to its target level.
Capital Economics expects that the Fed will begin to tighten monetary policy next year, and the average inflation rate in the United States in 2022 and 2023 will reach 3%, which will put pressure on gold. Tompkins added: "We do believe that monetary policy will be moderately tightened, leading to a slight increase in the real yield of U.S. Treasury bonds." Previously, Capital Economics had predicted that the price of gold would reach $1,750 per ounce by the end of this year.
New York Fed Williams: The basis for inflation growth is becoming wider and wider Pay attention to this trend.
Williams said that although some of the current price increases are related to the epidemic and the imbalance between supply and demand, prices have also risen in other areas such as housing. Williams said the rise in short-term and long-term inflation expectations is "positive" because expectations have reversed the previous decline in inflation. But officials do not want long-term inflation expectations to rise sharply.
Williams said that the U.S. economy is recovering rapidly after being disrupted by the epidemic, and "a series of unique circumstances" are causing changes between supply and demand. He said: "I think our policy framework is very suitable for this situation, because it again starts from the point that we want to ensure that inflation expectations remain stable at 2% in the long term."
Chicago Fed Evans: The Fed may need to raise interest rates in 2022
On Thursday, Chicago Fed Chairman Evans said that if inflation continues to remain high, he is "open" to adjusting monetary policy next year.
Although Evans believes that as the supply chain is repaired, price pressures will ease next year, and consumer demand is currently concentrated on commodities, turning to services, and the economy will return to a more normal balance. But he said that once the Fed completes its asset purchase plan in mid-2022, the Fed will consider how to adjust its short-term policy interest rate. Since the beginning of the epidemic in March 2020, the Fed has maintained its short-term policy interest rate close to zero.
Evans said: Given the uncertainty of the epidemic, the Fed’s rate hike is expected to be moderate. It may start after the asset purchase plan is completed next year, or it may continue until 2023; this will depend on the data we see and inflationary pressures. Status. If inflation expectations rise further, triggering a spiral increase in wages and prices, restrictions on the financial environment may need to be stricter. "
On Friday (November 19) in Asian markets in early trading, gold prices fluctuated within a narrow range. The long and short sides competed at the 1860 mark.
(Spot gold daily chart)
GMT+8 At 08:50 on November 19, spot gold was quoted at US$1,858.64 per ounce.
Capital Investment Macro: The Fed's policy stance in the next few years is expected to depress gold prices
Kieran Tompkins, assistant economist at Capital Economics, said: “Although we predict that high inflation in the United States will last longer than market expectations, this ultimately means investors are demanding higher inflation compensation. But we also believe that the Fed’s stance of moderate monetary policy tightening will raise the real yields of US Treasury bonds. This should be enough to cause the price of gold to fall in the next few years.”
During periods of high inflation, gold does have a history of performing well. But the key to the success of gold prices lies in how persistent the long-term price pressure is.
Tompkins said: “Although in the past 15 years, gold has performed very well as an inflation hedge, even surpassing the rise in the US Consumer Price Index (CPI), but in a relatively short period of time, the reliability of gold It has not been high. This is because it depends on whether short-term high inflation and rising inflation will have an impact on long-term expectations of inflation and interest rates. "
Soaring inflation pushes gold upward
As the global economy reopened, inflation began to soar. In the United States, housing prices accelerated in October, reaching their highest level in 31 years, at an annual rate of 6.2%.
Tompkins said: "Rising inflation is usually bad news for financial markets. As far as stocks are concerned, higher inflation may increase the value of earnings, but this effect is usually discounted by investors at a higher rate. Now the value of future earnings is offset. Investors believe that rising inflation will be accompanied by the central bank's tightening of monetary policy. The situation with bonds is similar, because as inflation rises, the purchasing power of bonds in future cash flows is eroded.
This concern about inflation made gold prices once again become the focus of attention this fall. The price of gold rebounded above US$1,800 per ounce, while analysts’ current target is US$1,900 per ounce.
Tompkins pointed out: “Gold is considered an inflation hedge. It can also be compared to a zero-coupon bond that can be held indefinitely because gold actually has a fixed nominal yield of 0%. The expectation of the actual monetary policy stance remains unchanged, and its price will not be adjusted downwards in order to adapt to higher inflation and tightening policy expectations."
In addition, asset prices are also affected by market sentiment. He added: "If most market participants believe that an asset can maintain its value during periods of high inflation, then market demand will rise in this case. As a result, collective beliefs raise prices, making them effective inflation. Hedging tool."
Temporary inflation expectations put pressure on gold
The report pointed out that when the surge in inflation proves to be short-term, the reliability of gold as an inflation hedging tool will be questioned. The report pointed out that this is the basic situation that may arise next year.
Tompkins said: “Because the increase in inflation this year has so far been generally described as temporary, the real yields of U.S. long-term Treasury bonds have not risen. In fact, these indicators have even declined slightly since the beginning of the year, reflecting investor expectations. The Fed does not need to substantially tighten monetary policy to bring inflation back to its target level.
Capital Economics expects that the Fed will begin to tighten monetary policy next year, and the average inflation rate in the United States in 2022 and 2023 will reach 3%, which will put pressure on gold. Tompkins added: "We do believe that monetary policy will be moderately tightened, leading to a slight increase in the real yield of U.S. Treasury bonds." Previously, Capital Economics had predicted that the price of gold would reach $1,750 per ounce by the end of this year.
Officials admit that the impact of inflation is expanding, and the Fed may raise interest rates as early as 2022, but the pace may be moderate
New York Fed Williams: The basis for inflation growth is becoming wider and wider Pay attention to this trend.
Williams said that although some of the current price increases are related to the epidemic and the imbalance between supply and demand, prices have also risen in other areas such as housing. Williams said the rise in short-term and long-term inflation expectations is "positive" because expectations have reversed the previous decline in inflation. But officials do not want long-term inflation expectations to rise sharply.
Williams said that the U.S. economy is recovering rapidly after being disrupted by the epidemic, and "a series of unique circumstances" are causing changes between supply and demand. He said: "I think our policy framework is very suitable for this situation, because it again starts from the point that we want to ensure that inflation expectations remain stable at 2% in the long term."
Chicago Fed Evans: The Fed may need to raise interest rates in 2022
On Thursday, Chicago Fed Chairman Evans said that if inflation continues to remain high, he is "open" to adjusting monetary policy next year.
Although Evans believes that as the supply chain is repaired, price pressures will ease next year, and consumer demand is currently concentrated on commodities, turning to services, and the economy will return to a more normal balance. But he said that once the Fed completes its asset purchase plan in mid-2022, the Fed will consider how to adjust its short-term policy interest rate. Since the beginning of the epidemic in March 2020, the Fed has maintained its short-term policy interest rate close to zero.
Evans said: Given the uncertainty of the epidemic, the Fed’s rate hike is expected to be moderate. It may start after the asset purchase plan is completed next year, or it may continue until 2023; this will depend on the data we see and inflationary pressures. Status. If inflation expectations rise further, triggering a spiral increase in wages and prices, restrictions on the financial environment may need to be stricter. "
On Friday (November 19) in Asian markets in early trading, gold prices fluctuated within a narrow range. The long and short sides competed at the 1860 mark.
(Spot gold daily chart)
GMT+8 At 08:50 on November 19, spot gold was quoted at US$1,858.64 per ounce.
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