No End in Sight for the Ongoing Gold Bull Run  

In Q1, gold prices exhibited strong upward momentum, with a quarterly gain of nearly 20%. However, since Q2, gold prices have been consolidating within a narrow range, and trading activity has noticeably declined.

The current gold bull market is primarily driven by geopolitical tensions among major powers and the loosening of the US dollar system. Against the backdrop of great-power rivalry, rising international risks in political, economic, and military spheres have fueled safe-haven demand for gold. The intensifying competition among major powers and the declining credibility of the US have increased the proportion of currency swaps between nations, while cryptocurrencies have gained traction, reinforcing gold's monetary attributes. Under these circumstances, the gold bull market may persist for an extended period.

Currently, the US faces mounting debt pressures. The total federal debt has surpassed $37 trillion, accounting for approximately 127% of GDP, with annual interest payments now exceeding US military expenditures. The Trump administration attempted to alleviate debt burdens through interest rate cuts, but tariff hikes have heightened the risk of imported inflation, leaving the US Fed hesitant and slowing the pace of rate reductions. To incentivize manufacturing repatriation, the Republican Party introduced tax cuts, reducing corporate burdens by trimming welfare benefits and lowering corporate taxes. However, according to the Congressional Budget Office, this bill is projected to significantly widen fiscal deficits over the next decade. Debt pressures will constrain US economic growth and erode global investor confidence in US dollar-denominated assets.

The performance of US equities largely reflects global risk appetite. When US stocks perform well, gold prices face downward pressure, and vice versa. Reviewing their correlation this year, the Nasdaq Index declined in mid-to-late April, with its steepest drop coinciding with gold's sharpest rally, and their peaks aligned closely. Recently, the US achieved phased progress in tariff negotiations with certain countries, dissipating negative sentiment and revitalizing market optimism, propelling the Nasdaq to record highs. Beyond US equities, stock markets in China, Japan, and parts of Europe have generally performed well over the past four months, with capital flowing into more volatile equity markets. In contrast, gold has remained subdued during this period, likely influenced by global equity trends.

Recent economic data highlights the pronounced impact of US tariff hikes. July's non-farm payrolls data fell significantly short of expectations, with downward revisions for the prior two months, contradicting earlier market assumptions of US economic resilience. This suggests tariff effects are lagged, as the grace period allowed businesses to prepare and restocking spurred short-term economic improvements. As tariff impacts intensify, global economies will face mounting pressure, limiting equity upside.

The anticipated September US Fed interest rate cut may mark a pivotal shift in global financial markets. Markets have long priced in rate cuts, and Trump has consistently pressured the Fed, but Chairman Powell has delayed action citing rising inflation risks. Following July's weak non-farm payrolls, expectations for a September cut have strengthened, with some Fed officials projecting three cuts this year. However, these expectations have not buoyed gold; instead, they've fueled financial market rallies. The September cut remains plausible given the current economic backdrop, and markets continue to benefit from accommodative monetary policy. Post-September, as tariff effects become more apparent, US inflation may accelerate, complicating Fed policy execution, and the scale of cuts could fall short of market expectations. Consequently, equities may face profit-taking amid limited fundamental support, triggering a pullback and reviving safe-haven demand, with capital shifting toward gold and other defensive assets, bolstering gold prices.

(Author: Dayou Futures)

Please note that this news is sourced from https://www.cnmn.com.cn/ShowNews1.aspx?id=464491 and translated by SMM.