Gold price encounters “Waterloo”; short-term consolidation does not change long-term investment value – 21 Economic Network

The international gold price, which has been rising for five consecutive weeks and reaching new highs, finally ushered in a correction.

On April 22, international gold prices plunged nearly 3%, falling below the $2,350 mark, the largest single-day decline since February last year. On April 23, spot gold continued its decline. As of press time, it had fallen below the integer mark of US$2,300 per ounce. It fell by more than 3.3% in two trading days, triggering the market’s doubts about whether the gold rally has stalled and whether a greater correction is on the way. Lively discussion.

A reporter from the 21st Century Business Herald learned from an interview that there are three reasons for the current drop in gold prices: first, the easing of geopolitical tensions has brought about a cooling of risk aversion; second, the decline in U.S. inflation is still not enough to support the Federal Reserve’s interest rate cut; third, In order to make profits at the financial level and leave the market, many domestic and foreign exchanges have adopted methods such as increasing margins to curb overheated speculation in the market.

Liang Xuan, a researcher at the Financial Market Department of China Construction Bank, told a reporter from the 21st Century Business Herald that a correction in gold is inevitable after continuously breaking through new historical highs, but in the medium to long term, the foundation for gold’s rise is still solid. On the one hand, the Federal Reserve’s expectations for an interest rate cut within the year may be reversed again at any time, bringing new long opportunities for precious metals; on the other hand, the international situation is compounded and this year is a “global election year”, and various uncertain factors may also affect the trend of gold in stages. In addition, the global central bank’s demand for gold purchases remains strong, becoming an important factor in pushing up gold prices.

However, many people in the futures industry reminded that as the May Day holiday approaches and in the face of a complex external environment, the volatility of the gold market may increase again, and it is recommended to reduce positions before the holiday. 21st Century Business Herald reporter also noticed that in the past two weeks, risk control measures in the Shanghai gold futures market have also been strengthened. In addition to imposing trading limits on gold futures varieties and increasing margin ratios, the Shanghai Futures Exchange also issued a notice on market risk control. The work notice reminds member units and investors to prevent risks, invest rationally, and jointly maintain the smooth operation of the market.

Expectations of Fed rate cut affect gold prices

Changes in expectations for an interest rate cut by the Federal Reserve are a major leading factor in the trend of international gold prices. Minutes of the Federal Reserve’s March monetary policy meeting released on April 10, local time, showed that the rate of decline in U.S. inflation was still insufficient to support interest rate cuts. The Fed will not cut interest rates until it is confident that inflation is returning steadily to target.

He Ning, chief macroeconomic analyst at Kaiyuan Securities, said bluntly that judging from the current data, the Fed’s first interest rate cut may be postponed to the fourth quarter of 2024, and it may even not cut interest rates throughout 2024.

It should be mentioned that before the two consecutive days of correction, international gold prices had risen for five consecutive weeks, constantly setting new historical highs. Liang Xuan told the 21st Century Business Herald reporter that there are two main factors leading to this round of gold rise: First, the market originally expected the Federal Reserve to start cutting interest rates in March and cut interest rates by 150 BPs throughout the year, but then returned to starting to cut interest rates in June and cutting interest rates throughout the year. 75BPs expectations, the downward revision of the probability of interest rate cuts has created conditions for gold to open an upward channel; second, geopolitical uncertainty supports the safe-haven attribute of gold, and the bottom of the gold price rises accordingly.

Under the influence of the higher-than-expected CPI in March, expectations of a rate cut by the Federal Reserve in June have subsided, and the geopolitical situation is changing at any time, so an adjustment in the international gold price is inevitable.

Zhan Dapeng, nonferrous research director of Everbright Futures, told reporters that the rapid rise in gold prices has begun to overdraw expectations of interest rate cuts by the Federal Reserve and expectations of geopolitical conflicts. Mid-term adjustments are inevitable, but the long-term bullish trend remains unchanged. In addition, from the perspective of CFTC gold positions, the total positions continue to rise, but the net long positions of institutions have not kept up with the pace. This also shows that the gold price has entered a “fish tail” market at the current position, and long transactions have become more crowded. Prevent the risk of a callback and long positions liquidation.

Wang Yanqing, a senior analyst at CITIC Futures, believes that this is a normal consolidation stage in the rise of gold prices, and a larger correction may occur during the consolidation. The previous continuous surge in gold prices may have deviated from the fundamentals to a certain extent, and the speculative sentiment on the market is strong. Once the rise slows down, a stampede may occur, triggering a rapid correction.

Short-term consolidation does not change long-term investment value

However, looking forward to the long-term future trend of international gold prices, most interviewees are still relatively optimistic. The reason is that the real interest rate in the United States is easy to fall and difficult to rise, and expectations of a recent interest rate cut by the Federal Reserve may still be fermented again.

Zhang Wen, head of the macro and commodity strategy group of CITIC Futures Research Institute, told a reporter from the 21st Century Business Herald that expectations for an interest rate cut in the United States at the end of the second quarter are still likely to rise again, and the probability of an interest rate cut within the year is still high. Once realized, it will be greatly beneficial to the recovery of the global economy and the reduction of financial risks. At this time, precious metals may resume trading, liquidity will become wider, and prices will stabilize and rise. In addition, U.S. fiscal risks, geopolitical risks and global economic growth risks also make precious metals valuable for long-term investment.

The chief economist of CITIC Securities clearly believes that although in the short term, the Fed’s negative stance may have a greater impact on the already over-rising gold price, in the medium to long term, it may be difficult for the Fed to further tighten monetary policy, and U.S. real interest rates It is easy to buy but hard to buy, and given the relatively turbulent geopolitical situation, the pace of gold purchases by global central banks may continue. It is expected that gold prices will still have some room for growth in the medium to long term.

The “Global Gold Demand Trend Report” released by the World Gold Council shows that global central bank purchases of gold will reach 1,037 tons in 2023, setting the second-highest record in history. Among them, the Central Bank of China ranks at the forefront of the “central bank gold buying wave”. Since November 2022, the Central Bank of China has increased its gold reserves for 17 consecutive months. As of the end of March 2024, the total gold reserves have reached 72.74 million ounces, equivalent to 2,074 tons. In the 2023 global central bank survey organized by the World Gold Council, 71% of central bank institutions believed that gold held by global central banks will increase in the next 12 months.

In a previous interview with a reporter from the 21st Century Business Herald, Wang Lixin, CEO of the World Gold Council China, pointed out that the increase in gold holdings by global central banks is not based on the need for short-term investment profits, but is a strategic consideration for the continued optimization of the asset allocation structure of foreign exchange reserves. In addition, gold has provided relatively stable annualized returns over the past few decades, which is also a major factor why central banks are willing to allocate gold assets in the long term.

Yan Xiang, chief economist of Huafu Securities, said frankly that in the medium and long term, the core factors of gold pricing are still real interest rates, risk aversion and the currency attributes relative to the US dollar. It is still a high probability that the United States will subsequently enter an interest rate cut cycle and the real interest rate will fall. In addition, gold purchases by global central banks have not yet been completed, which will provide support for medium and long-term gold prices.