SMM News: during China's National Day holiday, overseas financial markets experienced sharp fluctuations. With the smooth return of the Chinese market, the gold and silver of the precious metal in the inner market fluctuated slightly, but in the face of the superimposed influence of many factors, such as Trump infection and novel coronavirus shaking the election prospects, the US fiscal stimulus policy hanging in the balance, and geopolitical problems, gold and silver may continue to face high volatility risks in the short term. The middle line focuses on key events such as the bright future of the US election and US fiscal stimulus policy.
Combing through the market focus, we can see that with the renewed hope of a new round of US fiscal stimulus, there are positive expectations for the prices of most assets, including gold and silver. On the one hand, Federal Reserve Chairman Colin Powell stressed that the risk of too much aid is less than the risk of too little aid, and called for more fiscal stimulus. On the other hand, US President Trump has moved from suspending the fiscal stimulus plan to actively promoting it, and House Speaker Pelosi has also called Treasury Secretary Nuchin many times to discuss it. The two sides still disagree on the details of the stimulus package, and Republicans' intention for the size of the stimulus has increased and is closer to the $2.2 trillion proposed by Democrats than before. If the fiscal stimulus package is introduced quickly, it will give a strong boost to gold and silver, especially the more flexible silver. If the fiscal stimulus is further delayed, gold and silver will remain volatile in the short term. In addition, Trump's illness, if the subsequent deterioration of the disease, in the market risk aversion panic may repeat the October 2 situation, leading to a sharp fall in risky assets and gold and silver short-term decline, but the medium-and long-term impact is limited. In the US general election, Biden's lead in the polls has expanded over the past week, but in terms of bipartisan policy support, the Republican Party has the upper hand. The general election situation is still anxious and the outlook is still uncertain, and there is a risk that the follow-up process will be artificially interfered to prolong the follow-up process due to the approaching number of votes, and the market uncertainty and volatility will remain high. In addition, there is great uncertainty in global geopolitics near the general election, which may lead to the short-term strengthening of the safe-haven dollar to suppress the price of precious metals.
From the perspective of market focus, the progress of the new round of fiscal stimulus in the United States, Trump's illness and the election process are worthy of attention. On the one hand, Federal Reserve Chairman Colin Powell stressed that the risk of too much aid is less than the risk of too little aid, and called for more fiscal stimulus. On the other hand, US President Trump has moved from suspending the fiscal stimulus plan to actively promoting it, and House Speaker Pelosi has also called Treasury Secretary Nuchin many times to discuss it. The two sides still disagree on the details of the stimulus package, and Republicans' intention for the size of the stimulus has increased and is closer to the $2.2 trillion proposed by Democrats than before. If the fiscal stimulus package is introduced quickly, it will give a strong boost to gold and silver, especially the more flexible silver. If the fiscal stimulus is further delayed, gold and silver will remain volatile in the short term. In addition, Trump's illness, if the subsequent deterioration of the disease, in the market risk aversion panic may repeat the October 2 situation, leading to a sharp fall in risky assets and gold and silver short-term decline, but the medium-and long-term impact is limited. In the US general election, Biden's lead in the polls has expanded over the past week, but in terms of bipartisan policy support, the Republican Party has the upper hand. The general election situation is still anxious and the outlook is still uncertain, and there is a risk that the follow-up process will be artificially interfered to prolong the follow-up process due to the approaching number of votes, and the market uncertainty and volatility will remain high. In addition, there is great uncertainty in global geopolitics near the general election, which may lead to the short-term strengthening of the safe-haven dollar to suppress the price of precious metals.
From the perspective of the core driving force of gold pricing, there is a close negative correlation between gold prices and real interest rates in the medium and long term. Real interest rates in the United States have risen slightly since October, but due to the limited room for interest rates to rise in the United States, real interest rates are still expected to fall mainly in shock in the long run. As of Oct. 7, interest rates on 10-year Treasuries rebounded to 0.81%, the highest in more than three months, up 12bp from Sept. 30. Over the same period, implied inflation expectations for 10-year TIPS bonds rose to 1.71% from 1.63%, and the 10-year real interest rate rose from-0.94% to-0.90% from-0.94% on Sept. 30. Interest rates on US debt and inflation expectations have risen significantly, mainly due to renewed hopes of fiscal stimulus and an improvement in Mr Trump's illness. However, in view of the greater pressure on US government debt, the economic recovery has slowed obviously, and Federal Reserve Chairman Powell is still worried about the risk of downward inflation, so there is a good chance that the Fed will maintain the existing low interest rates and monetary easing for a long time. In the newly released minutes of the September Fed meeting, some members said they were open to future adjustments and increased bond purchases, which will also suppress the momentum of a further sharp rebound in US bond interest rates in the future. Inflation expectations are still a long way from the Fed's inflation target of more than 2%. In the long run, the downward trend of real interest rates remains unchanged, and it is still optimistic about the later performance of precious metals.
From the perspective of financial performance, during the National Day, the world's largest gold ETF-SPDR Gold Trust holdings hit a record high, rising by about 3 tons, and the current holdings are at 1271.52 tons. Silver holdings of the world's largest silver ETF-iShares Silver Trust also rose nearly 350t to 17426.15 tonnes, indicating that the market is still bullish on precious metals. In October, the high volatility of asset prices in global financial markets further intensified, market risk appetite fluctuated with the novel coronavirus epidemic, economic stimulus measures, and the Politburo situation, and the financial market, especially the stock market and commodities, had greater systemic risks. The continued rebound may rely more on the improvement of the novel coronavirus epidemic and the introduction of a new round of economic stimulus measures as soon as possible. Looking to the future, short-term domestic demand will focus on the progress of fiscal stimulus. If it is introduced quickly before the election, it will boost gold and silver, especially the more flexible silver. If Trump's condition worsens in the future, it may repeat the situation on October 2 amid market risk aversion panic, triggering a sharp fall in risky assets and a short-term fall in gold and silver. In the short term, the US election situation is anxious and geopolitical risks remain, and gold and silver are expected to continue to fluctuate high in the short term. The midline focuses on the guidance of monetary and fiscal stimulus policies before the US election. In the long run, nominal interest rates on US debt have limited room to recover, and the probability is mainly low. The inflation target is relaxed to facilitate the rebound of medium-and long-term inflation expectations. The long-term asset allocation of precious metals is still prominent.
