Non-agricultural results are unsatisfactory, the dollar and gold fluctuate greatly

The U.S. non-farm payrolls report released at 20:30 last Friday showed that the U.S. non-farm payrolls increased by 428,000 in April seasonally adjusted, higher than the expected increase of 391,000, and the unemployment rate in April was unchanged from the previous month’s 3.60% , higher than the expected 3.5%.

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After the data was released, spot gold rose short-term, with a maximum approaching $1,890, and then fell back to around $1,880. After the non-agricultural announcement, the market's expectations for the Fed to raise interest rates were roughly the same as before the announcement, and the probability of gold prices continuing to be weak and fluctuating in the short term is high.

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As the Federal Reserve officially entered the interest rate hike cycle, the real interest rate of the 10-year U.S. Treasury bond, which has been hovering in the negative range for nearly two years, continued to rise under the support of tightening expectations. It is now close to a positive state, but liquidity tightens and opportunity costs The "negative" impact of the uplift on gold has not been realized under the disturbance of geo-risk.

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Since the beginning of the year, under the alternating support of hedging demand and reflation transactions caused by the geopolitical conflict between Russia and Ukraine, the price of gold has fluctuated upwards. Market worries.

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Recently, the price of gold, which has been hovering at US$1,950/oz for more than a month, has fallen below US$1,900/oz, and the 30-day price volatility has continued to fall after peaking in March, and the gold market has fallen into a downturn.

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As a special commodity, gold has the dual attributes of a risk asset and a safe-haven asset. As the Federal Reserve starts the interest rate hike cycle, the impact of interest rates on the price of risk assets has begun to appear, and the demand for safe-haven also supports the price. During the course of price sideways, the market enters a low volatility pattern.

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The faster-than-expected rate hike by the Federal Reserve and the unexpected conflict between Russia and Ukraine have brought the double impact of interest rates and hedging on the gold price. We can divide the gold price trend since the beginning of the year into three stages for analysis.

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In the first stage, tightening expectations have increased and inflation expectations have eased. The rise in real interest rates has significantly suppressed the speculative value of gold, while financial market fluctuations and geopolitical risks have also supported gold’s hedging demand. Gold prices are raising interest rates and avoiding risks. The long-short game oscillated sideways. In the second stage, the safe-haven demand and inflationary pressure caused by the situation in Russia and Ukraine formed a double support for the price of gold.

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In the third stage, there is still great uncertainty in the follow-up sanctions for geopolitical conflicts, the long-tailed withdrawal of the demand for hedging, and the risk premium continues to rise. However, as inflation expectations have been fully reflected, interest rate hike expectations have once again become the core driver of real interest rates, suppressing the speculative value of gold. In the near future, with the gradual inclusion of interest rate hike expectations, U.S. bond interest rates have stabilized. At the same time, the geo-risk-led hedging demand is coming to an end, and SPDR gold ETF positions have been suspended. The fall in the risk premium and the stabilization of speculative value have caused the price of gold to drop slightly in the near future.

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As the dollar hits a 20-year high, investors are increasingly skeptical that the Federal Reserve is pushing up the dollar to curb stubbornly high inflation, known as the "war on currency." The U.S. dollar index hit a new 20-year high at the beginning of the European stock market opening last Friday, rising above the 104 mark for a time, and then although it fell slightly, it still stood above the 103 mark, and has achieved a five-week winning streak.

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It is worth mentioning that, given the unique position of the US dollar at the core of the global financial system, many other central banks are currently feeling the pressure of the Fed's "anti-currency war". Central banks other than the Fed might have embraced a surge in the U.S. dollar, but now a surge in the U.S. currency means a devaluation of their currencies, making it harder for them to keep up with the Fed.

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A depreciation of the local currency will push up the prices of imported goods and services, which in turn will push up inflation. On average, central banks in larger advanced economies need to raise interest rates by an average of 10 basis points to offset the impact of a 1% depreciation of the local currency.

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The euro fell to less than $1.05 against the dollar last week, hitting a five-year low and has fallen 7 percent against the dollar this year. With the world's major central banks embarking on a tightening path, the ECB's slow move appears bold. With the exception of Japan and the Swiss National Bank, which did not act in response to subdued inflation at home, only the European Central Bank in the G10 group remained on hold.

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Since June 2014, in order to combat the European debt crisis, the European Central Bank has kept the lending rate below zero, and the current deposit rate is still at a historical low of -0.5%. Although many policymakers have "singed the eagle's song", some officials are still cautious about potential interest rate hikes in Europe.

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Inflationary pressures in the U.S. mainly come from supply-side shocks, while aggressive interest rate hikes in the U.K. aim to hedge consumers’ cost-of-living pressures through fiscal stimulus. But in contrast, Europe faces a weaker labor market and a more subdued economic growth outlook, and is more clearly affected by the conflict between Russia and Ukraine.