The Federal Reserve announced the results of its interest rate decision overnight. If the market expects to keep interest rates unchanged, policymakers still expect the United States to cut interest rates three times this year, and it is expected to reduce interest rates by 75 basis points by the end of 2024. This news caused the U.S. dollar index to fall sharply overnight, closing down 0.39%. In morning trading on the 21st, the U.S. dollar index continued to fall. As of 9:15, it fell 0.2% to 103.2. Affected by the continued weakening of the U.S. dollar, precious metal futures rose overnight. COMEX gold hit a new record high in morning trading on the 21st at $2,225.3 per ounce. As of 9:14, COMEX gold rose 2.12% to $2,206.8 per ounce; COMEX silver rose 2.79% to US$25.805 per ounce. Shanghai gold reported 514.62 yuan/gram, up 1.8%, hitting a record high of 515.98 yuan/gram; Shanghai silver reported 6,469 yuan/kg, up 2.52%.
In the A-share market, as of 9:39 a.m. on the 21st, the precious metal sector rose 2.64%. In terms of individual stocks: Jingui Silver rose 4.84%. Sichuan Gold, Zhongrun Resources and Shandong Gold were all among the top gainers.
News front
The U.S. dollar fell for two consecutive days, making precious metals futures stronger. The U.S. Federal Reserve announced on March 20, local time, that it would continue to maintain the target range for the federal funds rate at 5.25%-5.50% in March. This is the fifth consecutive time since September last year that the Fed has kept interest rates unchanged. Economic forecasts released at the same time showed that policymakers overall still expect the bank to cut interest rates three times this year, which is basically consistent with what was reflected in the "dot plot" in December last year. At the press conference after the resolution, Powell also mentioned that the data in January and February did not boost the central bank's confidence in inflation. "We need more confidence before cutting interest rates." He also emphasized that the first interest rate cut has a significant impact and "will treat this issue cautiously and let the data speak for itself." According to CME FedWatch Tool: the probability of the Fed keeping interest rates unchanged in May is 89.6% (93.7% the previous day), and the probability of a cumulative 25-basis-point interest rate cut is 7.7% (10.4%). The probability that the Fed will keep interest rates unchanged until June is 25.1% (40.9% the previous day), the probability of a cumulative 25-basis-point interest rate cut is 67.4%, and the probability of a cumulative 50-basis-point interest rate cut is 7.5%.
CITIC Securities research report pointed out that the Federal Reserve's interest rate meeting in March 2024 will continue to maintain interest rates unchanged, in line with market expectations, and the interest rate meeting statement has changed little compared to the previous meeting. This dot plot shows that this year’s median target interest rate is 4.6%, which is the same as the December 2023 meeting. In terms of economic forecasts, compared with the December 2023 meeting, the growth forecast for this year has been significantly raised, and the growth forecast for next year has been slightly raised. In terms of inflation forecast, this year's core inflation forecast has been slightly raised. Powell's speech was generally neutral. We maintain our previous judgment that the Fed's first interest rate cut may be in June. This round of interest rate cuts may be a gradual rate cut in a "walk and see" mode. The next interest rate meeting may begin to slow down the balance sheet reduction from the middle of the year to the third quarter. End balance sheet reduction. In the short term, we expect that the U.S. dollar index and U.S. bond interest rates may fluctuate and run weakly, U.S. stocks may generally remain volatile, and expectations of easy liquidity may continue to bring certain benefits to growth.
SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings increased to 838.50 tons on Wednesday from 837.35 tons on Tuesday, an increase of 0.14%.
The recent high fluctuations in gold prices have caused many banks to increase their investment starting points for gold accumulation during the year. China Merchants Bank issued a notice on adjustments to the gold account business. Starting from March 27, 2024 (Wednesday), the starting point for gold account current and gold account fixed investment subscriptions will be adjusted from 500 yuan to 600 yuan. The gold account business purchase and redemption service hours are adjusted from 9:00-22:00 Beijing time on the trading day to 9:00-24:00. Since the beginning of this year, many banks including China Construction Bank, Bank of Ningbo, and Bank of China have raised the starting point for their accumulated savings.
Silver spot market
According to SMM, high silver prices have caused a weak stocking sentiment in the silver spot market, and purchases are mostly based on needs. Due to the slight decrease in silver prices on March 20, the market purchased actively. The surge in silver prices on the 21st may dampen the enthusiasm for market inquiries.
According to SMM survey, the production of #1 silver in February 2024 was 1276.094 tons (of which the production of silver with ore was 976.094 tons), a decrease of 30.029 tons or 2.3% on the month, and a year-on-year decrease of 1.4%. The overall output is still declining, mainly due to the decrease in silver content in raw materials and fewer production days due to the Chinese New Year holiday. Due to raw material problems, companies that mainly produce silver with ore showed an overall downward trend in output in February. The reasons are: 1. The silver content of the raw materials is reduced. 2. There is a holiday in February and the production cycle is short. The output of smelting companies that mainly come from other sources was mixed. The reason for the output decrease is that due to the holiday in February, there was not much raw material procurement. The reason for the output increase is that raw materials purchased at the end of the year arrived, and overtime production began during the Chinese New Year. It is expected that with the increase in production days in March and the high price of silver, the market will be more enthusiastic about production. It is expected that output will increase slightly in March.
Institutional Comments
Huatai Futures Research Report pointed out: In the early morning of the 21st, the Federal Reserve announced the results of the interest rate resolution and unanimously agreed to maintain interest rates unchanged. It reiterated that it is waiting for increased confidence in the fall of inflation. Previously, the market was worried that the number of future interest rate cuts shown in the dot plot would increase from 3 times. It dropped to 2 times, but in fact the dot plot maintains the expectation of 3 interest rate cuts this year. In terms of inflation outlook, the statement stated that the median core PCE expectation at the end of 2024 has been raised to 2.6%. Inflation has cooled over the past year, but is still at a high level. In Powell's subsequent press conference, he reiterated that policy interest rates may have reached a peak and that if necessary, he is prepared to maintain interest rates at a higher level for longer. It would be appropriate to cut interest rates at some point this year. In addition, Powell also mentioned that if the ON RRP account drops to the level of 0, QT's "blood pumping" of reserves will be almost 1:1, and liquidity risks may rise again. After the interest rate meeting, the overall price of precious metals maintained a strong trend. At present, it is still recommended to buy at low prices for hedging.
Tai Wong, an independent metals trader in New York, said: "Gold got a double dose of good news today: the Federal Reserve is still expected to cut interest rates three times this year, and higher interest rate forecasts in the future raise real concerns that inflation will become more difficult to control." Wong added that the market was slightly optimistic after the new dot plot maintained three interest rate cuts of 25 basis points each this year.
UBS Group said that once the Federal Reserve starts to cut interest rates, gold prices will gain more upward momentum. Gold ETFs have experienced capital outflows in the past few months, but as interest rates fall, a pickup in gold ETF buying will push gold prices higher. In addition, central banks, led by China, have been purchasing large amounts of gold, which has provided broader support to gold.
Societe Generale's portfolio managers still view gold as a core asset, especially after the bank made only minor changes to its multi-asset portfolio ahead of the second quarter. The bank said it will continue to maintain a 5% exposure to gold, although it has reduced its total commodity holdings by 1% ahead of the second quarter. While the bank's total commodities holdings make up 9% of its portfolio, its exposure to copper is bullish rather than oil. Analysts noted that they believe gold investors should remain vigilant as geopolitical tensions continue to escalate ahead of the 2024 U.S. presidential election. Analysts emphasized: "We believe precious metals have certain advantages ahead of the U.S. election and related fiscal policy risks." Although gold makes up only a small part of its portfolio, the bank said it prefers gold and cash as protective assets relative to U.S. Treasuries. The bank currently holds 14% of its portfolio in cash. Notably, however, the bank lowered its holdings of 10-year Treasury notes to 5% from 10% in the first quarter, a significant change in its portfolio. “Gold has firmly established itself in a multi-year range above $2,075 an ounce, indicating that the uptrend has resumed. It has surpassed last December's high," the analyst added. A multi-year consolidation breakout points to greater upside potential. The upward move is expected to potentially extend to the next targets, which are expected to be $2,250/ounce and $2,360/ounce. The rectangle has a target at $2,460/oz, while the upper limit of the rectangle area at $2,075/oz is near-term support.
Heraeus said in a report that gold demand may ease as summer approaches, while silver prices may catch up. Talking about silver in the report, Heraeus analysts said that silver is still undervalued compared to gold, but the gold-to-silver price ratio may soon show signs of slowing. “The gold-to-silver price ratio is trending upward so far this year, rising from 87.03 on January 1 to 85.6 last Friday. Since 2006, during previous gold price highs, the gold-to-silver price ratio has averaged 60.09. According to this ratio, the price of silver at the recent gold peak should be $35.85 per ounce, which is 47% higher than the silver price at the gold peak on March 11, indicating that silver prices are currently undervalued. " "Gold tends to be a safe haven for institutions, with retail investors preferring 'cheaper' silver." Heraeus noted that the gold-to-silver price ratio typically does not stay above 90 for long periods of time.
Goldman Sachs on Friday raised its 2024 average gold price forecast to $2,180 an ounce from $2,090 an ounce, and would reach $2,300 an ounce by the end of the year.
ANZ Bank said in a report that it expected gold prices to rise to $2,300 an ounce by the end of the year, compared with its previous price forecast of $2,200 an ounce. "While we continue to maintain a positive view on the market's long-term outlook, there may be a correction in prices in the short term, and if a correction occurs, it will be an opportunity to enter a long position."
CITIC Securities’ previous research report pointed out that since February 29, gold’s rapid rise was mainly caused by weakening overseas data, dovish speeches by Federal Reserve officials and emotional disturbances. Some current technical indicators have shown that gold has entered the over-rising range. Looking ahead to the market outlook, the price of gold may be close to the year's high. Under the expectation of a "soft landing" for the U.S. economy, risk aversion is unlikely to rise significantly, and it may be difficult for gold to have a big market. Before the Fed's interest rate cut is expected to come true, gold may still have a small amount of room. It is expected to remain high and volatile in the second half of the year. Pay attention to the disruption of gold by unexpected risks such as "secondary inflation" in the United States.
