Global recession and geopolitics support gold prices

Fears of a global recession and the latest geopolitical developments supported gold prices. But it's worth noting that the options market is flashing mixed signals, posing a challenge to gold buyers. Turning to options market sentiment, gold's one-month risk-reversal RR broke a nearly three-week downtrend on a week-to-week basis, but marked its third straight day of losses if viewed on a daily basis. The spread between the call and put options, known as the risk reversal RR.

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According to data from the U.S. Commodity Futures Trading Commission (CFTC), as of the week of August 2, the net long position of fund managers in COMEX gold futures increased by 38,374 contracts to 27,899 contracts; it had previously been a net short position for two consecutive weeks. Speculators' net-long bets on the dollar dwindled in the latest week. The net long dollar position fell to $17.27 billion in the week ended Aug. 2 from $18.46 billion the previous week.

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The latest report from the World Gold Council (WGC) shows that July was the worst month for global gold ETF outflows since March 2021, with a total of 81 tons of gold withdrawn from the market. "Much outflows from global gold ETFs and a reduction in gold futures positions (the fifth net short position since 2006) weighed on gold's performance throughout July," Adam Perlaky, senior analyst at WGC, said in a note. However, the WGC also noted that the market may be on the verge of a turnaround as sentiment turned bearish in late July. Demand remains strong after a strong first half, the WGC said. Total global open interest has increased by 5% so far this year. Demand is likely to pick up in August as bearish sentiment appears to have peaked.

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According to the latest forecast from Capital Economics, despite the rally in gold prices this week, gold prices are still likely to fall to $1,650 an ounce by the end of the year, before rebounding. Caroline Bain, chief commodities economist at Capital Economics, said: “After a sharp decline in the second quarter, we believe gold prices are now close to a cyclical trough. Furthermore, as markets factor in the prospect of tightening U.S. monetary policy, gold prices should look forward to 2023. It will pick up a little bit.”

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The U.S. non-agricultural employment population increased by 528,000 in July, a new high since February this year, an increase far exceeding the expected 250,000, and the previous value was revised down to an increase of 372,000; the U.S. unemployment rate in July fell 0.1 from the previous value and the expected value percentage point to 3.50%, the lowest since February 2020. The market had to reassess the Fed's response to such a strong labor market.

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Many Fed officials have made hawkish speeches, trying to reverse the market's expectation that the Fed will slow down the pace of interest rate hikes, thereby strengthening expectations for interest rate hikes. That means the Fed's intent to keep raising rates until inflation falls is unquestionable, regardless of the impact on growth and employment.

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As the Fed's hawkish voice resounded again, a series of speeches from these officials only intensified fears that the U.S. economy is falling into recession. In fact, in addition to the two possibilities of recession and high inflation in the future of the US economy, there is a third possibility, that is, stagflation, which is characterized by high inflation and stagnant economic growth. There are already more and more signs of stagflation.

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High inflation is forcing Americans to focus more consumer spending on low-margin food items rather than clothing and other staples, leaving retailers such as Walmart in excess of inventory and already forced to issue profit warnings. Rising living costs and recession fears are forcing some retirees and others who have left the workforce to look for work again. That has boosted the labor supply to some extent, keeping the unemployment rate steady near pre-pandemic lows.

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The bullish sentiment in the market is shrouded, the gold price continues to fluctuate at a low level, and the short-term bulls continue to climb. The top suppresses and focuses on the vicinity of 1807, and the low-level support focuses on the vicinity of 1725. The MACD indicator remains in the short area and moves up to the 0 axis. 50 Balanced on-line and narrow-range finishing;

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[Disclaimer] This article only represents the author's own point of view and does not constitute any investment advice. Please read it for reference only, and bear all risks and responsibilities.