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Geopolitical Fermentation Gold Continues to Soar

2022-08-03

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Spot gold continued to hit a new high of $1,780.39 since July 5. Affected by geopolitical tensions, the global financial market fell, and gold risk aversion increased; the US House of Representatives Speaker Nancy Pelosi's visit to Taiwan region of China attracted world attention, and the outside world was worried. Once Pelosi "visits" China's Taiwan region, it will inevitably have an irreversible impact on the relationship between the two countries. China has repeatedly issued warnings, hoping that the United States can abide by the one-China principle and not act recklessly.

Observers pointed out that the reason why Pelosi's planned visit to Taiwan, China this time has caused such a big stir is because Pelosi's political status is not ordinary. She is the No. 3 figure in the United States. It will bring Sino-US relations to the bottom, which is why the Biden administration is opposed.

Geopolitical Fermentation Gold Continues to Soar

The Fed is raising interest rates to keep inflation in check, but as a side effect it hurts the housing market, making it more expensive to borrow to buy a home. So if you're a real estate practitioner you're seeing a drop in home sales. Homebuyers need to be very realistic about today's changing market conditions.

UBS's probabilistic model currently sees a 40% chance of a recession in the next 12 months. A recent research report by the agency showed that a consumption-led recession is one possible way forward for a U.S. recession; another scenario could be the result of excessive Fed tightening. If consumer spending falls, it will hit confidence. This may be due to increased precautionary savings by households as they have to postpone shopping but are concerned about higher prices in the future.

Much of the debate surrounding the Fed's rate hikes is the timing - the Fed's sluggish response to rate hikes and the speed of this rate hike cycle. If done too aggressively, it could tip the economy straight into recession and boost safe-haven assets like gold.

Gold rebounded after hitting the key technical position of 1670-1680 this round. The fundamental driving force mainly came from the landing of the FOMC meeting in July and the U.S. GDP in the second quarter was significantly lower than expected. The market's worries about overseas recession sentiment made the precious metal supported.

It remains to be seen whether the bulls can continue the upward move. The focus this week is the upcoming US nonfarm payrolls report for July. The U.S. labor supply is still in short supply, and if the economic outlook deteriorates, it means that the possibility of the Fed raising interest rates by 75 basis points in September no longer exists, and a rate hike of 50 basis points will be reasonable.

The dollar is likely to continue to weaken in August as many of the macro data in the U.S. start to get worse, and gold prices are expected to rise to $1,800. If the situation continues to deteriorate, the Fed may stop raising interest rates at some point in order to facilitate the economic recovery. What's more, some other major economies may start some kind of stimulus spending.

The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.

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Geopolitical Fermentation Gold Continues to Soar

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