Gold Bull Run Is Not Over Yet, Each Correction Is A Buying Opportunity

In July, expectations for US Fed interest rate cuts once again became the core influencing factor for gold price trends (rising expectations for interest rate cuts in the first half of the month had a bullish impact, while cooling expectations in the second half had a bearish impact). Meanwhile, the easing of global trade relations and geopolitical tensions had a bearish impact, causing gold prices to oscillate in a "rise first, then fall" pattern. London gold cash prices oscillated within the range of $3,267.9 to $3,438.9 per ounce, experiencing a slight drop of 0.38%. SHFE gold prices oscillated within the range of 765.2 yuan to 794 yuan per gram, experiencing a slight rise of 0.71%. At the beginning of August, gold prices surged sharply due to weak US non-farm payrolls data.

Inevitable Changes and Restructuring in the Current Era

Currently, the global economy is still in an era where trade, political, and monetary orders all facing changes and restructuring that are unlikely to reverse in the short term. The real economy is generally weak, and the policy easing cycle continues. Systems, orders, and mechanisms are shifting from order to disorder. Trade barriers are accelerating the progress of deglobalization, and the escalation of geopolitical tensions and the reshuffling of international politics are bringing chaos to the political order, putting continued pressure on the global economy to remain weak. Meanwhile, the continuation of loose monetary policies (with declining effectiveness in stimulating the economy) is leading to excessive liquidity. Under this background, stock, currency, bond, and commodity markets are experiencing increased volatility and low investment returns. Wealth preservation is becoming more important than wealth appreciation, and gold, as the most valuable asset in "chaotic times," is particularly crucial. Therefore, from a medium and long-term perspective, gold's investment value remains high.

Impact of US Fed Policy Tendencies on the Gold Market

Unexpected "hawkish" remarks from the US Fed put pressure on gold, but medium and long-term loose policies still provide a bullish impact. The US Fed's July interest rate meeting kept rates unchanged as expected, with Bowman and Waller voting against the decision within the expected range. Therefore, the Fed's meeting statement had limited impact on the market. Compared to market expectations, the statement presented a neutral to slightly "hawkish" tone, causing the market to lower its expectations for a September interest rate cut. The US dollar and US treasuries continued to strengthen, putting pressure on precious metal prices to pull back.

Specifically, in terms of the Fed's meeting statement, the Fed kept the target range for the federal funds rate unchanged at 4.25% to 4.5% for the fifth consecutive meeting. The Fed stated that inflation remains slightly high, employment is solid, economic growth slowed in the first half of the year, and uncertainties remain high. Bowman and Waller, two governors, held different opinions and voted in favor of an interest rate cut, marking the first time in over 30 years that two governors have voted against the decision (both nominated by the Trump administration). The description of economic activity was changed from "continuing to expand at a solid pace" to "having slowed somewhat" (providing a basis for subsequent interest rate cuts). Powell emphasized in his speech that a moderately restrictive policy is still appropriate at present, and it is too early to conclude whether the Fed will cut the federal funds rate in September as financial markets expect. Current uncertainties remain high, and Fed officials will focus on data changes and make interest rate decisions, with the unemployment rate being worth paying attention to. The process of tariff transmission to prices may be slower than previously anticipated, and it is still too early to judge the impact of tariffs on inflation. The Fed does not consider the cost of changes in government debt interest rates.

From the perspective of the Fed's meeting statement, except for Bowman and Waller voting against the decision and adjustments in the description of economic activity, there were no other changes in wording. Therefore, the meeting statement met market expectations and had limited impact on the market. Powell emphasized that whether the Fed will cut interest rates in September depends on subsequent data changes. The Fed will not adjust its policies based solely on government demands, showing a relatively tough stance and directly resisting Trump's pressure, presenting a neutral to slightly "hawkish" tone that had a relatively significant impact on the market.

From the perspective of expectations for adjustments to the Fed's monetary policy, inflation and employment remain the focus of the Fed's attention. The future core variables basically depend on the transmission of tariffs to inflation and the evolution of secondary inflation expectations. Currently, uncertainties in US trade policies have eased somewhat, and economic uncertainties have slightly weakened. There are expectations for a rebound in US inflation, the employment market is not weak, and the possibility of a debt crisis is low. However, pressure from the Trump administration still exists, and there are signs of a weakening employment market. The Fed's expectation for two interest rate cuts in the second half of the year remains unchanged, with one cut each in September and December, totaling 50 basis points. August and September may see renewed trading of expectations for and the reality of Fed interest rate cuts, which will have a bullish impact on gold.

Global Trade Relations Ease in the Short Term, But Remain Generally Tense

The global trade situation is constantly changing, with the US government's attitude still being the dominant factor. The US government's proposal for reciprocal tariffs has intensified global trade tensions, causing risk aversion to rise and gold prices to continue to increase. Subsequently, the suspension of reciprocal tariffs and progress in trade negotiations with major economies have reduced market tensions, especially substantial progress in US-Japan and US-EU negotiations, significantly reducing market risk aversion and causing gold prices to fall back from highs.

The US resumed imposing so-called "reciprocal tariffs" on August 1. Currently, the US government is still negotiating with multiple economies at the last minute. So far, the US has only reached preliminary agreements with economies such as the UK, Vietnam, the Philippines, Indonesia, Japan, South Korea, and the EU, with other economies still in negotiations. Despite Trump's statement that there will be no further extensions, US Treasury Secretary Bessent emphasized that even if tariffs are increased on August 1, the negotiation window remains open. In addition, China-US negotiations are still ongoing. Both sides will continue to promote the 90-day extension of the suspension of US 24% reciprocal tariffs and China's retaliatory measures as scheduled during the China-US Economic and Trade Talks held in Stockholm, Sweden, with a high possibility of subsequent improvement. However, the possibility of the US government "changing its face" again cannot be ruled out.

Currently, the easing of global trade relations has had a bearish impact on gold, but this has been largely priced in by the market. In the future, there are still significant uncertainties in global trade relations. Although the overall trend of tensions has eased in the short term, it remains generally tense in the long term. Therefore, for gold, there may be a bearish impact in the short term, but it remains bullish in the medium term. In the second half of the year, changes in global trade relations are more likely to have a bullish impact on gold.

Global Major Central Banks Continuing Gold Purchases Provide a Bullish Impact

Despite global central banks slowing down their gold purchasing pace in the second quarter, they are still purchasing large amounts of gold. The World Gold Council's gold demand report shows that in the second quarter, global total gold demand increased by 3% YoY to 1,249 mt, with its value surging by 45% to a record $132 billion. However, global central banks slowed down their gold purchasing pace in the second quarter, with net gold purchases falling to 166 mt, a 21% YoY decrease and the lowest level since 2022. Nevertheless, net gold purchases by the People's Bank of China were 6 mt in the second quarter and the PBOC increased its gold reserves for eight consecutive months.

Despite the slowdown in the growth rate of global central banks' gold purchases, under the influence of conditions such as continued loose policies and trade uncertainties, global central banks' gold purchases remain at a high level, and the possibility of subsequent continued purchases and reserve increases is growing. On the one hand, this increases the effective demand for gold; on the other hand, it increases market confidence, still providing a bullish impact on gold prices.

Correction is a buying opportunity

The easing of global trade relations and the weakening of geopolitical tensions have had an impact on reducing risk aversion. The stronger-than-expected performance of the US economy in the second quarter, as reflected by GDP, has once again strengthened expectations that the US economy remains robust. This, combined with the "hawkish" signals released by the US Fed's July interest rate meeting, has had a strong impact. Under the influence of factors such as rising market risk appetite and the rebound in the US dollar and US treasuries, gold prices have fallen from late July to early August. In the second half of the year, the possibility of expectations for US Fed interest rate cuts increasing, the recent easing of global trade relations, but the potential for subsequent escalation, and the continued increase in gold purchases by global central banks will still have a bullish impact on gold. Therefore, the recent adjustment in gold prices will provide medium-term buying opportunities.

From the perspective of the market trend in the second half of the year, gold prices still have room for correction in the short term, but the overall trend remains bullish. The first support level below is $3,200 to $3,250 per ounce (750 yuan to 755 yuan per gram), while $3,000 to $3,100 per ounce is the core support level (700 yuan to 720 yuan per gram). In the second half of the year, the possibility of breaking above $3,500 per ounce remains relatively high. Once it effectively breaks through this level, it will continue to set new historical highs. From a long-term perspective, the gold bull market is still not over.

The author of this Chinese article is Zhongtai Futures.

Please note that this news is sourced from https://www.cnmn.com.cn/ShowNews1.aspx?id=464124 and translated by SMM.