Core point of view
In the near future, the Fed is expected to raise interest rates strongly. On the one hand, the employment data in the United States has gradually improved, and the unemployment rate in the United States was 3.9% in December 2021, which is gradually approaching the pre-epidemic level; on the other hand, inflation remains high. In December 2021, US CPI rose 7 per cent year-on-year, the highest in nearly 40 years. Market expectations of a Fed rate hike are rising.
Looking back over the past 20 years, gold prices have remained strong during the Fed's rate hike. Looking back at the two interest rate hikes by the Federal Reserve since 2000, the price of gold has risen with the rise in the federal funds target rate. Among them, from June 30, 2004 to June 29, 2006, the US federal funds target rate rose from 1.25% to 5.25%, while the price of gold rose from US $393.0 / oz to US $588.9 / oz, an increase of 49.8%. From December 16, 2015 to December 20, 2018, the US federal funds target rate rose from 0.25% to 2.50%, while the price of gold rose 17.7% from $1076.8 / oz to $1267.9 / oz over the same period.
The main reasons why the dollar is still strong after raising interest rates are: first, it is difficult for the Federal Reserve to raise interest rates to solve the problem of inflation. During the last two interest rate hikes, US CPI growth rose from 3.3 per cent to 4.3 per cent year-on-year and from 0.7 per cent to 1.9 per cent. Raising interest rates will not reduce inflation, thereby increasing the anti-inflationary demand for gold. Second, the Fed's interest rate hike will lead to a rise in real interest rates, an increase in corporate financing costs and, to some extent, a slowdown in US economic growth. Third, gold has a high degree of participation in the capital market, and the price itself reflects the expectation of raising interest rates in advance. When the Federal Reserve officially begins to raise interest rates, the risk factors in the gold market are released, and gold prices are prone to rise.
Although facing the expectation of raising interest rates, the upward momentum of gold price is still there. First of all, inflation in the United States is at its highest level in 40 years, while the prices of commodities such as crude oil continue to rise, and inflation is difficult to solve effectively in the short term; second, the overall US economy is improving but still fragile. with the gradual tightening of US monetary policy, it is expected that the progress of economic recovery will slow down, or even downside risks. Third, the COMEX gold futures adjustment has been nearly 18 months, as of January 18, 2022, has dropped 11.9% from the previous peak, the negative risk has been released to a certain extent. Gold rebounded only briefly after the release of US jobs data in December 2021, suggesting that the market has begun to absorb the negative impact of higher interest rates.
Investment suggestion
Against the backdrop of the Fed's expected interest rate hike, gold prices are expected to remain strong, and relevant companies may benefit, such as Zijin Mining, Chifeng Gold, Hunan Gold and so on.
Risk hint
International geopolitical changes, the international novel coronavirus epidemic intensified, macroeconomic policy changes.
