SMM News: the World Gold Council (WGC) recently released data show that in the third quarter of 2020, gold investment demand declined significantly, and the global central bank showed 10 years of net sales. Under the continuing influence of the COVID-19 epidemic, global gold demand fell to 892.3 tons in the third quarter. The position data of the world's largest gold ETF--SPDR showed that as of November 23, gold ETF positions stood at 1213 tons, the lowest since July 21. On the whole, gold prices will remain weak in the short term, and the implementation of fiscal stimulus is expected to push gold prices upward.
Gold has plummeted frequently recently.
In early November, the uncertainty of the US general election was greater, and gold gradually rose. Since mid-November, there has been frequent good news from the vaccine, which has sharply depressed the price of gold. London gold tumbled $100 an ounce after Pfizer and BioNTech announced that the vaccine was as effective as 90 per cent. After the market sentiment was stable, Moderna announced the good news of the vaccine, which hit gold again. The certainty of vaccine has increased sharply, and the market risk appetite has increased, which suppresses the risk aversion demand of the market. As a result, risky assets rose sharply, while safe-haven assets, precious metals, the dollar and Treasuries experienced a slump. Us bond yields were once close to a high of 1 per cent, while the dollar index continued to fall to the 92 mark.
After the US election, the market is generally betting on the introduction of the early fiscal stimulus package, but there are still big differences between the two parties on the scale of the fiscal stimulus. The size proposed by the Republican Party is only 500 billion US dollars, while that proposed by the Democratic Party is as high as 2.2 trillion US dollars, and there are frequent talks between the speakers of the two houses of Congress, but there is no news to be implemented, the market expectations are once again disappointed, and the golden profit and many factors cannot be realized.
Biden's Democratic Party favours a massive fiscal stimulus package, and Fed officials reiterated their concerns about the future economic outlook in a public speech last week, promising extreme easing and calling for more fiscal stimulus. Republicans prefer a small fiscal stimulus package, and above all, Republicans control the Senate, and even if Biden takes office, it would be unrealistic to save the economy through a massive fiscal stimulus package.
The US Markit manufacturing data in November far exceeded market expectations. The rapid return to work and production in the United States dealt a fatal blow to precious metals, and the dollar index rebounded slightly. Throughout the outbreak of the epidemic in the United States again in November, the number of new confirmed cases in a single day was once close to 200000, but the United States did not implement city closure measures, and economic data reached a new high in recent years. The three outbreaks in the US contrasts sharply with extremely optimistic economic data, suppressing not only market demand for risk aversion, but also forecasts of the size of the US fiscal stimulus, and the market is even betting that there will be no fiscal stimulus plan in the future.
Both the good news for vaccines and the sharp improvement in US economic data have dampened safe-haven demand and expectations of a flood of water in the US, with precious metals plummeting in November.
Fiscal stimulus will be late, but not too late.
U.S. Treasury Secretary Mnuchin recently asked the Federal Reserve to return more than 400 billion dollars unspent in the March massive epidemic relief plan so that Congress can return the funds to stimulate the economy. These funds were originally emergency loans for enterprises, non-profit organizations and local governments. The Treasury's move means that it is seen by the Federal Reserve as a key crisis response plan to maintain economic stability, which will most likely end on December 31.
Mnuchin wrote to the Fed proposing to extend the validity of some of the emergency tools launched by the Fed during the epidemic by 90 days, including Commercial Paper Funding Facility, a tool to provide short-term commercial paper loans to companies, Money Market Lending Facility, a tool to promote the normal functioning of the money market, and PPP Liquidity Facility, a tool related to supporting the small business wage guarantee program (PPP). The first two tools can be extended without Fed approval. At the same time, Mnuchin also demanded that the Fed immediately stop using some of its emergency tools to fight the epidemic, including two tools to buy corporate bonds in the primary and secondary markets, Municipal Liquidity Facility to buy state and local government bonds, TermAsset-Backed Loan Facility, to maintain liquidity in asset-backed securities, and Main Street Lending Program to support loans to small and medium-sized enterprises.
At present, the Fed chairman has agreed to return the money, and some of the facilities will not continue to be provided after the end of the year.
Biden will replace the current Treasury Secretary when he takes office, and the money recovered from the Fed will provide up to $600 billion of existing funds to the next Treasury Secretary to help individuals and businesses, and provide $750 billion to $800 billion in loans through Fed tools. Combined with the $500 billion fiscal stimulus package currently proposed by Republicans, the subsequent fiscal stimulus package is expected to be between $1 trillion and $1.5 trillion. Optimistic economic data and good news about vaccines make it difficult to introduce fiscal stimulus in the short term, but 12 million people will not be able to receive unemployment benefits after Christmas, so we think there is a good chance that fiscal stimulus will be introduced before the end of the year. The fiscal stimulus package will be passed after the president takes office next year at the latest.
There is still room below the gold price.
In the short term, the market sold gold based on good news based on vaccines and economic data, and positions in the world's largest gold ETF--SPDR basically showed a net outflow in November. SPDR's position data showed gold ETF positions stood at 1213 tonnes as of November 23, down 7 tonnes from the previous day and the lowest since July 21, and gold ETF has seen inflows on only one of the past 11 trading days. On the real interest rate side, nominal interest rates rose sharply, while inflation expectations did not rise as fast as nominal interest rates, causing real interest rates to rise gradually, with 10-year TIPS yields rising from a low of-1 per cent to about-0.85 per cent, and the cost of holding gold rose, depressing gold prices again.
In addition, the probability of recent fiscal stimulus is too small to push up gold prices. There is no new tool for monetary policy, and there is only support for the price of gold. Overall, gold prices will remain weak in the short term, and there is still room below, or go back to where they were when fiscal stimulus was negotiated in July, while fiscal stimulus may be late, but it will not fail to wait for fiscal stimulus to be implemented. it is expected to push the gold price up.
