The fengshui turns around and the gold looks up again?

SMM: in November, while global equity assets such as stock markets and cyclical commodities rose sharply, gold, as a safe asset, suffered a massive sell-off, with the COMEX gold active contract falling 5.6% monthly in February and falling below $1800 an ounce at one point. The factors that led to the collapse in gold included a rise in market risk appetite caused by progress in vaccines, a rebound in real interest rates in the US dollar along with a rebound in nominal interest rates, and a decline in inflation expectations due to the difficulty of US election and fiscal stimulus policies. Gold investment demand fell due to reduced risk compensation.

In December, we found some improvement in the factors that triggered the collapse of gold, especially the renewed decline in real interest rates in the US dollar and the renewed depreciation of the US dollar exchange rate, which may mean that the decline in investment demand for gold may slow down. There is a chance for gold to rebound in stages. However, with real interest rates in the US dollar still above August-September levels and investment demand for gold falling from its peak of the year, gold prices can only be defined as a phased rebound.

The epidemic in the United States is likely to make a comeback, boosting gold risk aversion.

The number of confirmed cases and hospitalizations of COVID-19 in the United States surged during the Thanksgiving holiday, and US public health officials expect a faster surge in COVID-19 cases in the United States after the Thanksgiving holiday. Hospitals in New York State have been ordered to increase their beds by 50%. To cope with manpower shortages, hospitals must also contact retired doctors and nurses and be prepared to transfer patients between hospitals to share the pressure. From November 27, non-urgent surgeries in Erie County, New York, will be cancelled, as well as in other parts of New York soon.

For gold, the resurgence of the US epidemic is a positive factor, as the epidemic will slow the economic recovery and further increase the Fed's efforts to expand its asset purchases, thus pushing dollar interest rates back from high levels, and the dollar exchange rate will depreciate again, thus boosting the price of gold. The epidemic itself could trigger market turmoil, and the fall in U. S. stocks triggered safe-haven buying of gold.

Inflation expectations in the United States have risen, and short-term support for gold prices has stopped falling and rebounded.

Judging from the members of Biden's recent cabinet, the likelihood of US fiscal spending will increase. On November 30th Biden officially announced the composition of his economic team. According to the list, most of Biden's newly nominated economic advisers are veterans of the Obama era, who want the federal government to provide more spending, better regulation of Wall Street, and more taxes on the rich. and more subsidies to the poor.

Neera Tanden and Heather Boushey jointly published a commentary with academics Robert Greenstein and Felicia Wong in March expressing their views on debt and deficit, which means that the new round of US economic team is focused on fiscal spending. The article argues that in the face of the economic impact of the epidemic, debt and deficit do not pose a risk, and policy makers should put aside their concerns about the deficit and come up with the measures needed to deal with the crisis.

Us inflation expectations have rebounded recently due to market expectations of a new round of US fiscal policy stimulus in 2021, which will support the rebound in gold prices in the short term. Us inflation expectations, measured using 10-year inflation index Treasury yields and 10-year US Treasury yields, rebounded 1.77 percentage points on November 30, the highest since January 15, according to the data. Since 2009, there has been a moderate positive correlation between US inflation expectations and COMEX gold.

In terms of monetary policy, as the current US government, led by the Republican Party, the Treasury Department has asked the Federal Reserve to return the remaining funds allocated by the (CARES) Act on Coronavirus Aid, Relief and Economic Security, this means that the two parties in Congress will still be locked in a long stalemate over the second round of fiscal stimulus package, and the market expects the Fed to increase monetary easing in order to avoid disrupting the economic recovery.

On November 30th, Federal Reserve Chairman Colin Powell said the recent news about novel coronavirus's vaccine was "very positive", but said that "there are still major challenges and uncertainties about the vaccine, including timing, production and distribution, and the efficacy of different populations." the outlook for the US economy is (still) particularly uncertain.

Judging from the Fed's balance sheet, the US balance sheet fell slightly from the previous week by $20 billion to $7.27 trillion in the week ended November 25, which had some dampening effect on gold prices. If, as expected, the Fed increases its asset purchases in the absence of fiscal stimulus in the future, balance sheet expansion is positive for gold prices, which requires further observation and is short-term bearish.

Real interest rates in the US dollar fell again, and the decline in investment demand for gold slowed.

For gold investors, the dollar real interest rate is the opportunity cost of holding gold. If the dollar real interest rate rebounds, it will lead to an increase in the opportunity cost of holding gold, and gold will suffer a sell-off, such as the collapse of gold in November. At the end of November, real interest rates on the dollar fell again, which helped gold prices to stop falling and rebounding. As of November 30, the real interest rate on the dollar, as measured by the yield on 10-year US inflation-indexed Treasuries, fell back to minus 0.93 per cent, but still above the September average of more than-1 per cent, according to the data.

The decline in investment demand for gold has slowed as real interest rates in the dollar have fallen again. From the perspective of trading strategy, we tend to trade the rebound market in the short term, and investors can consider using gold futures to capture the periodic rebound market, such as COMEX gold futures contract. COMEX gold futures represents the world's leading gold price benchmark futures contract, which has excellent liquidity, daily trading volume of nearly 27 million ounces, and provides margin offsets, which is a high capital efficiency futures contract.