The global economy has continued to recover this year, with inflation expectations, higher real interest rates and a stronger dollar index putting pressure on gold. However, from a policy perspective, there is still some support for precious metals. The Biden administration has signed a $1.9 trillion fiscal stimulus bill, and the market is full of expectations for a new infrastructure plan, but there is still uncertainty about whether it will hit the ground and how much stimulus it will give to the economy. The minutes of the Fed's March meeting continued to play down the rise in US bond yields and maintain the current level of bond purchases. Overall, the optimistic outlook for economic recovery and higher US debt and dollar indices have weighed on gold, but there is still policy support. Short-term long-short factors are intertwined, gold or shock is strong.
1. The economic recovery of Europe and America is divided, and the United States is better than Europe.
In the post-epidemic era, with extremely loose policies and continuous vaccination, the global economy is gradually recovering. However, in terms of the strength of economic recovery, the recovery of the United States and China is obviously better than that of Europe, mainly because of the third wave of the epidemic in Europe, countries have to take blockade measures again, in addition, before the outbreak of the epidemic, the economic performance of Europe is weak, superimposed by the impact of the epidemic in 2020, the pressure of European economic recovery is greater.
The US manufacturing industry has rebounded to the range of expansion since June 2020 and shows a continuous upward trend. The ISM manufacturing industry reached a multi-year high of 64.7 in March 2021. Judging from the itemized data of the PMI index, new orders, output, order inventory and employment all rebounded sharply in March compared with the previous month, reflecting the continued pick-up in social activities in the United States. The noteworthy price index soared from 37.4 in March last year to 85.6 in March 2021, the highest level since July 2008, reflecting the high inflation that the United States may face as a result of rising prices. If the Fed acts in a timely manner in the face of inflation, precious metals will pull back sharply, but if inflation continues to be tolerated, gold's anti-inflation properties will be favored again by investors in the face of high inflation.
After the outbreak, the US Treasury implemented three rounds of fiscal stimulus programs in a row, mainly to deal with the novel coronavirus epidemic and to distribute welfare red envelopes to residents. Although residents were quarantined at home and their wages were low during the epidemic, with the support of financial red packets, the consumption of durable goods in the United States reached a multi-year high. However, the fiscal stimulus is unsustainable and the consumption of durable goods is cyclical, and the recovery of the service industry in the second half of the year may become an important driving force for the US economy.
The employment environment in the United States continued to improve, with 916000 non-farm payrolls added in March, significantly exceeding market expectations of 650000, and 379000 non-farm payrolls last month. 597000 new jobs were created in the service production sector, of which education and health services, leisure and hotel and wholesale industries increased significantly compared with the previous month. The improvement in employment data shows that the US service industry continues to recover, and the service industry may become an important endogenous driving force to promote US economic growth in the second half of the year.
The process of economic recovery in Europe is slow, the third wave of the epidemic hit and the vaccination situation in Europe is not optimistic, and other factors, the overall performance of the European economy is still weak. However, the high point of the global economic recovery in the second half of the year may also depend on the recovery of the European economy. At present, the European economy is still in a low position. If the epidemic is effectively prevented and controlled, the recovery of the European economy will play an important role in the process of global economic recovery.
2. higher real interest rates and US dollar index put pressure on the price of gold.
Us long-end bond yields have been on an upward trend since August 2020, with interest rates on 5-year, 10-year and 30-year bonds rising faster, especially when the 10-year yield exceeded 1.7% on March 18. At present, the Fed still plays down the upward attitude of bond yields, which also provides support for the upward trend of 10-year bond yields, but the upward interest rates have suppressed gold.
However, short-end interest rates in the United States remain low, mainly because the Federal Reserve continues to maintain a low interest rate policy, while long-end interest rates rise due to optimistic market expectations of economic recovery. In the short term, the Fed may continue to maintain loose monetary policy, but continue to pay attention to the time point of monetary policy turning point.
In terms of inflation expectations, the current long-term inflation expectations in the United States have reached a multi-year high, and since January this year, five-year inflation expectations have exceeded 10-year inflation expectations, which also reflects that the United States is full of expectations for economic recovery after the epidemic. Longer-term inflation expectations depend on the direction of macro policy. As a result, as inflation continues to rise and the Federal Reserve remains loose, gold may be favored by investors for a long time as a weapon against inflation.
Since January this year, the dollar index has bottomed out and rebounded, and the upward trend has been basically established. At present, the US economy continues to recover and the US economy is better than that of Europe. The euro accounts for a higher weight in the dollar index. Under the weak economic performance in Europe and repeated expectations of the epidemic, a weaker euro will provide strong support to the dollar, while a stronger dollar will strongly suppress gold.
3. Macro policies support the price of gold.
In the post-epidemic era, the economies of all countries have entered an important stage of economic recovery, whether monetary policy or fiscal policy continues to stimulate the economy. Us President Joe Biden signed a $1.9 trillion fiscal stimulus bill in March, and the market is expecting the Biden administration to unveil a $2,000bn infrastructure plan for eight years aimed at rebuilding America's aging infrastructure, promoting electric vehicles and clean energy, and creating jobs.
In terms of monetary policy, the Federal Reserve still maintains the current low interest rates and bond purchases. The minutes of the March Fed meeting show that officials believe that it will take some time to make substantial progress and that they do not need to adjust their guidance frequently; they are not worried about higher US bond yields, as reflecting an improved economic outlook and an increase in Treasury issuance. Participants agreed that despite the improvement in the economy, the economy is still far from meeting the Fed's goals and that the epidemic is still a huge risk to the outlook.
At present, both US fiscal and monetary policies support gold. But emerging market countries have taken measures to raise interest rates in the face of higher US bond yields. Denmark, Norway, Brazil, Turkey and Russia all raised interest rates in March. It is expected that as the global economy continues to recover, central banks around the world may usher in a collective shift in monetary policy, when precious metal prices will be put to the test.
4. Summary and prospect
To sum up, the global economy continues to recover in the post-epidemic era, with inflation expectations, higher real interest rates and a stronger dollar index putting pressure on gold. However, there is still some support for precious metals from a policy point of view, and the market is full of expectations for new infrastructure plans, but there is still uncertainty about whether the plan can be landed and how much stimulus it will give to the economy. Bullish prospects for economic recovery and higher US debt and dollar indices have weighed on gold, but there is still policy support. Short-term long-short factors are intertwined, gold may continue the shock trend.
Risk points: policy tightening and geopolitical deterioration
