On February 7, COMEX gold futures prices closed up 0.61 per cent, the biggest one-day rise since mid-January, continuing the volatile climb during the Spring Festival holiday and up 1.4 per cent from the end of last month.
Industry insiders said that COMEX gold came out of the sharp plunge after the Fed's interest rate meeting at the end of January, mainly because last week the market lower expectations for the Fed to raise interest rates sharply in March, thus putting pressure on the dollar index to fall sharply, providing support for gold prices.
Looking forward to the future, market participants pointed out that the support and restraining factors of gold price trend exist at the same time. Follow-up focus on the US CPI data released on Thursday, the market is expected to continue to soar 7.3% of US CPI in January compared with the same period last year, with inflation high and good for gold prices in the short term, but the rising pressure on interest rates may still put gold prices under correction pressure.
Inflation worries trigger a rebound in gold prices
Looking back on recent trends, affected by the geographical situation in Russia and Ukraine, COMEX gold futures prices hit 1854 US dollars per ounce in intraday trading on January 25, the highest level in the past two months. However, after the Fed's first interest rate discussion meeting this year, the recent consistent hawkish stance has heightened expectations of raising interest rates. Bearish on gold, which is non-interest-bearing assets, COMEX gold plunged sharply to 1795 US dollars per ounce on January 27th, a drop of 2.02%. It recorded the biggest intraday decline since November 22 last year.
After entering February, COMEX gold was back on track, closing at $1821 an ounce on February 7, up 1.4 per cent from the end of last month, but experienced a shock adjustment today, falling 0.09 per cent at one point in intraday trading.
Market participants pointed out that recently, some Fed officials have said that they want to avoid unnecessary disturbances to the US economy caused by an interest rate hike, so the Fed is expected to raise interest rates sharply in March, restraining the dollar index to a certain extent and helping gold prices to recover; but on the other hand, the US non-farm data for January released last Friday (February 4) are better than market expectations, putting pressure on gold prices to rise sharply.
"by reviewing the previous three interest rate-raising cycles of the Federal Reserve, gold has been strong in the interest rate-raising cycle, and its price trend has a significant inverse relationship with the actual maturity yield of US bonds." Soochow Securities macro team also said that when policy changes lead to changes in basic supply and demand, the correlation between gold prices and Fed interest rate increases will be greatly reduced. In addition, gold can well withstand the risk of high inflation, which is synchronized with the interest rate hike cycle, which is one of the reasons why gold has performed well in the interest rate hike cycle.
People related to the Global Markets Department of the Bank of China believe that, on the whole, the safe-haven demand for gold has declined recently. Among them, in terms of geopolitics, although the tension between Russia and Ukraine has not been substantially alleviated, the situation has not been further intensified, and the flow of Russian natural gas to Europe through the Ukrainian route is close to the normal level. In addition, in terms of the epidemic, the peak number of new infections in Europe and the United States has passed, and the new death toll is not higher than the previous level, indicating that the severity rate of the current Omicron epidemic is indeed relatively low, and the market's concern about the epidemic has eased somewhat.
Gold price still has upward space to guard against the risk of pullback.
"before the actual actions of the Federal Reserve hit the ground, high inflation is difficult to be effectively contained for the time being. Therefore, in the case of high inflation, gold prices are expected to continue to rise. " Mel Ya Futures Company Liu Xin told the Financial Associated Press that from the upside space, it is still within a certain range, COMEX gold in the vicinity of 1880 US dollars / oz there is still a clear pressure, so before effectively breaking through this price, is expected to maintain shock upward.
Galaxy futures researcher Wan Yijing believes that when the Fed does not clearly imply the emergence of interest rate hike 50bp, it is unlikely that precious metals will continue to decline significantly, and the probability of maintaining range shocks as a whole is higher. Another concern is whether the Russian-Ukrainian issue will continue to heat up, which may trigger a rebound in short-term risk aversion and provide strong support for precious metals.
The above-mentioned Bank of China Global Markets Department also pointed out that in the context of the accelerated monetary tightening of the Federal Reserve, gold prices as a whole still showed considerable resilience, basically stable at the $1800 mark. However, the regression results of the nominal yield of 10-year US bonds, the 10-year break-even inflation and the gold price since 2019 show that the current gold price is nearly $150 above the fitting value, close to its high level in August 2020. Historically, when the gold price deviates from the fitting value by more than $100, it usually marks an inflection point and needs to pay attention to the risk of a subsequent correction in gold prices.
Liu Xin further analyzed that when US bond yields are too high, there will be the possibility of a considerable amount of safe-haven funds flowing from gold to US Treasuries, and there are bound to be signs of gold prices falling, so we should be on guard against the risk of gold prices falling. However, it is worth noting that if the inflation problem is not solved, there is a limit to the rise in US bond yields. After a period of time, there will be a renewed anti-inflationary demand for funds, when gold prices may rise again.
