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Hawks raise interest rates to confront geopolitical risks, how will gold perform?
2022-04-25
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Recently, as the Fed once again released a tough tightening view to the market, investors' expectations for the Fed to accelerate interest rate hikes have increased, and the price of gold has been under pressure. support.
Troubled Russia-Ukraine conflict
Recently, when Russian President Vladimir Putin held talks with Defense Minister Shoigu, he ordered the Russian army to cancel the storming of the Azov steel plant in the Ukrainian port city of Mariupol. Putin's every move has never been a whim, and suddenly withdrawn at the door, Putin may want to adjust the course of the entire situation by adjusting the Russian offensive.
Recently, the Russian Ministry of Foreign Affairs announced that it would impose sanctions on 29 American individuals who served the "anti-Russian agenda". The U.S. media quickly made headlines about this matter—the Russian sanctions list includes U.S. Vice President Harris and Facebook founder Zuckerberg, which can be said to be the current learning and application of Western routines.
The U.S. Department of the Treasury has just announced sanctions against Russian commercial banks "Intercapital Bank", billionaire Malofeev and other entities and individuals. Putin and his daughters, as well as the core decision-makers, have all been on the list.
In addition, Russia, the most advanced and powerful RS-28 "Sarmat" intercontinental ballistic missile, successfully tested for the first time. This is a "milestone" for the Russian military in the development of advanced weapon systems. NATO countries form a huge deterrent.
The Russian Defense Ministry said recently that the Russian Aerospace Forces used high-precision long-range air-based missiles to destroy the weapons terminal at a military airfield in the Odessa region, where a large number of weapons supplied by the United States and Europe to Ukraine were stored.
According to the war situation information released by the Russian Ministry of Defense earlier, the Russian army destroyed Ukrainian equipment in Kharkiv and Nikolayev regions on the 23rd, and attacked including command posts, ammunition depots, etc. There are many Ukrainian military facilities, and the continuous decline of the Russian-Ukrainian conflict provides obvious support for the price of gold.
Over-issue of currency "water floods gold mountains"
If this year is counted, the global commodity bull market has entered its third year, and behind the massive price increase is the combined effect of the global currency's over-issued lag response and supply shocks. Global inflation risks are also increasing rapidly. Corresponding to the monetary policy, the United States did not hesitate to tighten, Europe closed marginally, and Japan continued to stimulate aggressively. So when you see the performance of the exchange rate, the dollar has skyrocketed, and there is further upward momentum, and the yen and the euro have depreciated sharply.
In the decades before the collapse of the Bretton Woods system in the 1970s, commodity prices were very stable because paper money was not over-issued. However, after the collapse of the Bretton Woods system, there were often over-issues of banknotes, the prices of commodities rose sharply, and global inflation accelerated.
Gold is a natural competitor of banknotes, so the rise and fall of the price of gold is an important indicator to reflect whether the banknotes are over-issued. During the over-issue phase of banknotes, the price of gold will rise sharply. As the over-issued currency flows into the entity, it slowly pushes up the inflation level.
After the outbreak of the new crown epidemic in 2020, major central banks around the world started a new round of currency issuance, so the price of gold rose sharply in 2020. Later, as the global economy resumed operation, the over-issued currency gradually flowed into the real field.
If there is no impact of geopolitical risks on supply, as the new crown epidemic eases on a global scale, the prices of commodities, which have already experienced two years of price increases, should tend to cool down. This can also be seen from the trend of gold prices. If there is no increase in geopolitical risks, as the real interest rate of US bonds rises, the price of gold should theoretically fall, but in fact it has risen.
As geopolitical risks increase, supply-side shocks continue to push up bulk prices, and looking forward, this geopolitical risk is still highly uncertain, and the global supply chain system is facing a severe test, which is future inflation an important source of stress.
Goldman Sachs "sings more" gold again
Due to the multiple properties of gold itself, its price is always determined by several factors, including investment demand, consumer retail and central bank gold purchases.
In this regard, Goldman Sachs released a report on April 21, saying that due to the simultaneous strengthening of the above three demands, they raised their gold price target at the end of the year to $2,500 per ounce, and pointed out that if the price of gold rises, it is also expected to achieve a balance in the spot market. .
Despite the recent strong physical demand for gold, the price of gold has not performed well due to the low liquidity in the futures market. In contrast, gold ETFs continue to be hot, and retail gold purchases in developed markets are at record highs. Even if the demand for ETFs and the physical gold demand tracking index they launch are strengthening at the same time, this is not sustainable. To balance the balance of the spot market, the price of gold must rise.
Regarding the future trend of gold ETFs, Goldman Sachs pointed out that the potential risk of economic recession may promote gold, and Wall Street predicts that the possibility of a recession in the U.S. economy in the next year is about 20-35%.
And these recession risks mean that a large number of investors need to build a safe-haven portfolio, and the price of gold may rise.
The central bank's gold purchases have intensified
Although from the second half of 2021 to the beginning of 2022, the performance of the central bank in the gold market will be relatively flat. This is mainly because the strong dollar has prevented the accumulation of central bank gold reserves, and the central banks of Turkey, Kazakhstan and other countries have also been forced to liquidate gold to support their currencies. But at present, emerging market currencies have gradually stabilized, and major gold buyers such as Russia and Kazakhstan have also returned.
The important thing is that Russia's economic account surplus and capital restrictions will lead to a large surplus in its foreign exchange currency, but at the same time Russia is difficult to make foreign exchange investment due to Western sanctions, so the Russian central bank may absorb most of the domestic unretailed domestic currency. gold.
All in all, under the strong investment demand, frenetic central bank gold purchases and strong consumer retail, gold prices need to rush to a higher position to maintain the balance of the spot gold market.
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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