Overnight gold saw an extremely rare Synchronize rally against the dollar as US CPI growth in October hit its highest year-on-year rate in more than 30 years on Wednesday. And this scene obviously made many precious metal bulls rejoice, thinking that the anti-inflationary nature of gold is beginning to coruscate again, and the precious metals market may usher in a new wave of bullish momentum!
Spot gold prices recently settled in a narrow range around $1846 in Asia on Thursday, according to market data. Earlier, gold surged more than $40 in intraday trading on Wednesday, hitting a peak of $1868, its highest level since June.
In the view of many industry insiders, the gold rally on Wednesday is particularly rare, this rise is achieved in the context of the rise of the US dollar Synchronize. Overnight in Europe and the United States, the dollar index rose nearly 100 points all the way, and once hit the 95 mark in the morning.
More interestingly, from the news point of view, whether it is gold or the dollar, it is clear that the reason for the overnight rally is the same: us inflation data in October entered a strong "6 era"!
Data released by the labor department on Wednesday showed that the consumer price index ((CPI)) rose 0.9 per cent in October, exceeding the 0.6 per cent forecast by economists surveyed by the media. CPI rose at an annual rate of 6.2% in October, the highest since November 1990.
Why does gold go against the trend and rise with the dollar?
After the release of the CPI data, market expectations for the Fed to raise interest rates rose rapidly. Traders in the interest rate futures market have again advanced their expectations of the Fed's first rate hike to July from September next year, and expect a second rate hike by December.
If measured from the perspective of rising interest rate expectations and the surge in the dollar, the overnight rise in gold is undoubtedly extremely unreasonable, because gold and the dollar generally have a seesaw effect. However, it was clear that investors in the precious metals market did not struggle too much at this level yesterday, and it was the movement of real interest rates that really affected the precious metals market overnight, along with rising fears of high inflation.
In the long run, there is a strong negative correlation between the price of gold and the real interest rate in the United States. With inflation expectations rising sharply on Wednesday, the real yield represented by (TIPS), an inflation-protected Treasury bond, fell further to a record low. At one point in the morning, the 10-year TIPS yield fell to-1.243%. At one point, the 30-year TIPS yield fell to-0.608%, both of which hit record lows.
Lower real interest rates helped gold break through the key resistance level of $1835 on Wednesday. According to Ole S Hansen, head of commodities strategy at Saxo Bank, the current trend in real US yields could suggest that gold has at least $50 of further room to rise.
Of course, the underlying reason for the recent continued decline in US real interest rates is still a deep fear of high inflation, especially after the release of the latest CPI data for October, which burst overnight, while gold, the traditional inflation hedge tool of the past, got a ride.
Peter Spina, president and CEO of GoldSeek.com, pointed out that "inflation is becoming more and more serious, and the 'temporary' theme is on the verge of disintegrating. Managing expectations used to be the Fed's most powerful tool, but they are getting out of control as sustained price rises really start to raise awareness and awaken the market. Real yields have fallen further to negative, while interest in buying gold is growing. "
"the rise in Bitcoin on Wednesday is for the same reason, with depositors and traders looking for alternatives to cash," said Adrian Ash, head of research at BullionVault. The worst inflation in the United States in 30 years means that cash savers have suffered the worst loss of purchasing power. "
A number of institutions raised their expectations of gold prices
At present, with the sharp rise in the precious metals market overnight, a number of investment banks have raised their expectations for the next trend of gold prices.
CITI on Wednesday raised its target price for gold over the next three months by 11% to $1900 an ounce, raising its fourth-quarter price forecast to $1800 from $1700.
Peter Grosskopf, chief executive of Sprott, said, "I am glad to see that gold has once again played an important role in offsetting inflation and has become another option in the current financial markets." Grosskopf expects gold prices to continue to move towards record highs, while the impact of the Fed's tapering of asset purchases is beginning to be felt.
"inflation has emerged and things are only going to get worse," said Bob Haberkorn, a senior commodities broker at RJO Futures. "the main concern is that there is a limit to what the Fed can do to stop inflation. They will lose control of the market." Haberkorn added that he expected this to be just the beginning of a higher gold price. His next target is for gold to rise to between $1900 and $1920 an ounce.
Colin Cieszynski, chief market strategist at SIA Wealth Management, also expects gold to rise to $1920 an ounce. "this is a major breakthrough in gold prices, and there is not much difference between gold prices and $1900 an ounce," he said. Gold prices not only broke through a huge resistance level, but also occurred at a time when the dollar was higher, which means that gold prices have further upward momentum. "
Darin Newsom, president of Darin Newsom analysis, also expects gold prices to rise in the near term as there are signs that the dollar is peaking, which will benefit all major commodities. "I expect gold to test its previous high of $1875 to $1915 in December. This means that the current medium-term upside potential is limited, and the weekly random index has exceeded the 80% overbought level, which means that buying interest may start to slow, but we have not yet seen any sign of a U-turn. It may take a few more weeks. "
In addition, David Meger, director of metal trading at, High Ridge Futures, said, "Gold is a typical hedge against inflation, and we believe that inflation is a potential bullish environment that will further boost the gold market in the coming weeks and months."
Of course, there are still some institutions who doubt whether gold's anti-inflation halo can last. After the release of the US CPI data on Wednesday, Russ Koesterich, managing director and portfolio manager of BlackRock's global allocation team, reiterated his position that gold was not a good hedge against inflation. As I discussed last winter, gold is grappling with volatile real interest rates, a stronger dollar and a decline in its effectiveness as a hedge. For now, I will look elsewhere to hedge against inflation and keep gold exposure low, "he said in the report.
Although the JD Morgan team recently raised its forecast for gold prices this year, gold prices are expected to average $1760 / oz in the fourth quarter of 21 and $1740 / oz in the first quarter of next year. But Gregory C. Shearer, an analyst at the agency, still points out that the rise in gold prices triggered by inflation and soaring energy prices will not last until the end of next year, and he expects gold to fall to $1520 by the end of next year.
