SMM News: Europe's second full outbreak of the epidemic, major economies to take a new round of economic and social control measures, serious market panic, commodity and financial markets fell. There is great uncertainty in the US general election, there is still no progress in the new round of stimulus negotiations, and the dollar rebounded due to liquidity demand and safe-haven attributes, putting gold under pressure. Gold is at the end of convergence in terms of technology, and any macro factor increases its fluctuation after breaking. At present, there is still room for the downside of safe-haven gold, but it is relatively limited. This round of decline also provides an opportunity to buy allocation, and it is recommended to buy mainly through a deep fall.
I. the surge in new cases in Europe has led to a renewed social blockade.
With the approach of autumn and winter, the second epidemic in Europe has fully broken out and continues to worsen. The number of new confirmed cases in France and Spain has reached about 50, 000, while that in Britain, Italy, Germany and the Netherlands has reached about 20, 000, setting a new high. The number of new cases in Europe remained at about 250000. The epidemic is so serious that major economies will take strict blockade prevention and control measures one after another. French President Jean-Claude Macron announced that the whole of France will be closed again from October 30, in response to the rapid rebound of the COVID-19 epidemic. German Chancellor Angela Merkel said the German federal and state governments have agreed to adopt new blockade measures from November 2. Other economies will also issue new blockade measures one after another. Affected by the surge in new cases of the epidemic and the renewed blockade in Europe, the epidemic and economic concerns led to a sharp fall in stock markets in the United States and Europe, with the S & P 500 falling the biggest in four months. The combination of risk aversion and liquidity demand made the dollar stronger, while gold prices fell on the strength of the dollar, the safe-haven nature of gold was watered down by market panic, and spot gold closed down more than $30 to hit 1,869.62 in intraday trading. the lowest level since Sept. 28.
With the continued deterioration of the epidemic in Europe and the United States, social control measures have been tightened again, economic recovery has been hit again, and a second economic downturn in Europe and the United States is inevitable. Central banks in Europe and the United States will adopt further quantitative easing policies to reduce the extent of economic decline. the continuation of quantitative easing, the release of liquidity and the increase in future inflationary pressures are also positive for gold.
Second, the strength of the US dollar index puts pressure on the price of gold.
The surge in new cases in Europe led to a renewed social blockade, market panic affected financial commodity markets, superimposed political uncertainty and the plight of the stimulus bill in the United States, and the dollar index rose 0.45% to 93.45, the biggest gain since September 23. In the short term, due to the difficulties of the stimulus bill and the impact of the epidemic to boost the demand for the dollar, the dollar still has the possibility of a small rebound, and the extent of the rebound is limited. In the medium to long term, the ultra-loose economic policy, ultra-low interest rates and the new monetary policy framework have also been hit. After the fall of the euro and sterling, the upward trend has a reverse impact, and the long-term volatility of the dollar will continue to weaken, which will weaken in the 90-95 range. The possibility of falling below 90 in 2021 cannot be ruled out.
Gold is denominated in US dollars. from the historical trend, there is also an obvious negative correlation between gold and US dollar index. when the US dollar index enters the downward cycle, the price of gold tends to be strong, and when the US dollar index enters the upward cycle, the price of gold tends to be weak, which is determined by the dollar pricing function of gold. The dollar has rebounded again recently, putting pressure on gold, which should have performed strongly because of its safe-haven nature, similar to the market in early March. When market panic rises, both safe-haven and risky assets are sold off, while liquidity demand makes the dollar index outperform.
At present, due to the continued deterioration of the epidemic, Europe has adopted a new round of social control measures, the US election has increased political uncertainty, adding to the fact that it is difficult to launch a new round of US stimulus bill before the election, and there is still room and possibility for the US dollar to rebound slightly. This will continue to put pressure on safe-haven gold, but in the long run, central banks in Europe and the United States will continue to deepen the policy of quantitative easing and adopt a new round of stimulus measures. The US government will introduce a new stimulus bill after the election, and the release of liquidity will keep the downward trend of the dollar volatile, which is good for gold.
III. The White House gives up hope of launching a stimulus package before the election.
A new round of stimulus bill negotiations have been deadlocked by the election, with both Republicans and Democrats refusing to compromise. The White House has abandoned hopes of a stimulus package before the election, and a spokesman expects it will take weeks to reach a deal. Trump and his aides put the blame on House Speaker Nancy Pelosi. Trump said House Speaker Pelosi will not approve the economic stimulus package, and when the election is over, we will have the best stimulus package in history. House Speaker Nancy Pelosi said that President Trump is too concerned about the stock market and that he is too vulnerable to the stock market. I hope he can now return to the negotiating table to focus on negotiations on the stimulus package. Currently, legislative work on the stimulus package has not yet stopped, and the White House and Capitol Hill need to finalize an agreement on the stimulus package as soon as possible.
The continued deterioration of the epidemic worries government departments, but based on election considerations, the possibility of passing before the election is still slim; after the election, the stimulus bill will be introduced quickly, which is more beneficial for the dollar because of risk aversion in the short term. in the long run, it is still negative because of the continued release of liquidity. After the election, the stimulus bill will be introduced quickly and liquidity will be released, which will be beneficial for gold.
IV. With the US general election approaching, political uncertainty is becoming more and more serious.
The US general election will be held on November 3, and the results will be announced on November 4. After the president's last debate, Biden even led Trump by 14% by 53% to 39% in the poll; according to current polls, Biden still leads Trump by a wide margin of 43.6% by 51.1%. Therefore, at present, major institutions and media believe that Biden is likely to be elected, but the United States implements an electoral system, and the victory of universal suffrage does not represent the victory of the final presidential election. Hillary Clinton won the voter vote in 2016 and lost in the voter vote.
Specifically, the Republican Party and the Democratic Party each have their own basic plate, and it is not a big problem for both sides to win all the electoral votes in their own basic set. At present, the number of electoral votes in the basic set of the two sides is roughly the same, and the Democratic Party has a slight advantage. What really determines the outcome of the election is the results of the six swing states: Florida (29 votes), Pennsylvania (20 votes), Michigan (16 votes), Arizona (11 votes), North Carolina (15 votes) and Wisconsin (10 votes). There is a basic rule in the American election, that is, the swing state gets the president! The most important swing states are Florida (29 votes) and Pennsylvania (20 votes), which together have 49 electoral votes, accounting for nearly half of the total number of swing states. According to the latest poll data, Biden is only 1% ahead of Trump in swing states, so Biden looks like he has a big lead in the national polls, but he has a slim lead in the decisive swing states. Therefore, from the perspective of swing states and electoral system, Biden is still not sure of winning, and Trump still has a good chance of making a comeback.
Separately, the U.S. Senate voted to approve President Trump's nomination of Amy Connie Barrett to the U.S. Supreme Court; the composition of Supreme Court justices has changed, conservatives: liberals = 6:3. In the US general election, the legal battle between Republicans and Democrats over how to count votes increases the risk that the election results will be disputed. If Trump loses, the Supreme Court will submit the disapproved election results to the Supreme Court for ruling on factors such as mailing ballots. The composition of the Supreme Court is in favor of the Republican Party and Trump. Because there is still a lot of uncertainty in the US election, it will be good for gold, and there is no doubt about the value of gold in troubled times.
The short-term decline of gold for risk aversion will provide opportunities for long-term allocation.
Major European countries have adopted a new round of economic and social control measures. Market panic and the rise of the dollar index have led to a sharp fall in gold and silver, superimposed by the impact of the technology market. Gold and silver are at the end of convergence. Macro factors make it fall sharply after breaking through the healthy level in line with the technical law. Driven by the incident, France and Germany fell into blockade again due to the epidemic, which became the fuse. The VIX panic index in Europe and the United States rose and the stock market fell, and the mood weakened as a whole. Judging from the technical graphics, gold is likely to fall below its previous low level.
From the seasonal analysis, September and November are the off-season of gold and silver, the probability of rising in October is relatively low, the suppression of the dollar index and the change of liquidity are also more obvious, and the gold is likely to fluctuate widely. therefore, it is a better choice for bulls to weaken earnings expectations or consider holding positions for February-March or even longer. In the post-epidemic era, risk points such as the second epidemic, the stimulus bill and the US election, and a new round of quantitative easing still support the price of gold, so gold still has room to rise in the long run, and a short-term pullback is an opportunity to buy allocation.
At present, the core strategy is to focus on the pullback of gold, especially the long-term buying point where gold has extremely low points, and short-term fluctuations will be relatively large. Once there is a deep fall, it is the best time for gold to enter the market for some time in the future. There is no doubt that there are still variables in the current market. Gold and silver on the graph have just begun to fall, and there is still room for decline, but whether to enter the market and short it is necessary to consider the ability to withstand risk events, and it is still recommended to buy bargain-hunting.
