In the process of global economic recovery, the commodity nature of silver will be supported, and the price of gold and silver is expected to fall. For the long-term trend of precious metals, as the global epidemic improves, interest rates will rise further, while gold and silver pressure will continue to show.
Since the beginning of this year, precious metals have shown a downward trend as a whole. Although the global monetary policy stance is still loose and fiscal policy support continues, precious metals do not seem to be favored by investors in the context of economic recovery. So, whether precious metals have really been overshadowed, and what is the logical main line of their price operation?
Monetary policy divergence in Europe and the United States
The performance of the US dollar has been relatively strong for more than a month, and the US dollar index has risen from the highest level of about 90 to above 93, which has put great pressure on precious metals, which is due to the epidemic situation in Europe and the United States and the differentiation of monetary policy.
Since March, many European countries have seen the rapid growth of the epidemic and strengthened the epidemic prevention blockade measures. For example, Germany has continued the blockade that was scheduled to last until March 28 until April 18, and France has entered the third blockade until late April, which has once again put pressure on the economic outlook of the euro zone. In view of the current epidemic situation in Europe and the economic situation, the ECB decided at its interest rate meeting in March to speed up the implementation of the emergency anti-epidemic bond purchase program in the second quarter. In addition, a number of European countries have announced a moratorium on the use of the AstraZeneca Covid-19 vaccine because of safety concerns, and there are reports of severe blood clots in the vaccinators, which further slows down the vaccination process in Europe, which is already facing a shortage of vaccines.
On the other hand, the epidemic situation in the United States has been well controlled, the number of new confirmed cases every day has remained stable, and vaccination work is advancing rapidly. It is reported that the number of people in the United States who have been fully vaccinated against novel coronavirus has reached 22% of the total population of Good control of the epidemic has made the Fed more confident about the future economy. Although the Fed's recent statement is still relaxed, and Federal Reserve Chairman Powell also claimed that the Fed should not discuss policy changes while the United States is still in the recovery stage of the crisis, measures such as the Fed's suspension of SLR exemption in March tightened market liquidity, which also shows that it is extremely impossible for the Fed to release a signal of further easing. Recently, Fed voting committee Brad also claimed that a reduction in QE could be discussed when the vaccination rate reached 75 per cent or higher, raising concerns that the Fed would gradually tighten monetary policy.
Us bond yields continue to rise
The US government has launched several rounds of massive fiscal stimulus since 2020, and a new $1.9 trillion stimulus bill was officially launched in March after Biden took office in 2021. Not only that, the Biden administration is pushing for a decade-long $2.25 trillion infrastructure bill.
Although fiscal stimulus is conducive to speeding up economic recovery, the funds needed for the implementation of fiscal policy still need to be obtained through the issuance of treasury bonds, which on the one hand leads to an increase in the supply of market treasury bonds, and on the other hand, the issuance of treasury bonds will absorb funds from the market and tighten the level of funds. this leads to an upward trend in US bond yields. Precious metals and US Treasuries are both safe-haven assets, which usually rise and fall with each other. As the supply of US debt increases and bond prices fall, precious metals will also operate under pressure.
Inflation expectations have risen
Although the global economy is still affected by the epidemic, the economic recovery is already evident. In the manufacturing sector, the manufacturing PMI of ISM in the United States recorded 64.7 in March, the highest since December 1983, while the initial PMI of manufacturing in the euro zone was 62.4 in March. In terms of employment, the unemployment rate in the United States fell to 6% in March, the lowest since March last year. The employment situation in Europe is slightly worse, with the unemployment rate in the euro zone unchanged from January at 8.3%. In its latest World Economic Outlook report, IMF expects the global economy to grow by 6.0% and 4.4% in 2021 and 2022, respectively, up 0.5 and 0.2 percentage points from its January forecast.
The process of economic recovery is gradually pushing up inflation, which will reflect the value preservation properties of precious metals. Us CPI rose 2.6 per cent in March from a year earlier, the highest since August 2018, while the Fed's inflation target was just 2 per cent. The initial CPI of the euro zone rose 1.3% in March from a year earlier, and there was also a clear upward trend.
To sum up, we are optimistic about the precious metals market in the second quarter, mainly supported by loose monetary policy and inflation expectations. As for the long-term precious metal market, with the improvement of the epidemic and the gradual recovery of the economy, interest rates will rise further, while the pressure on gold and silver will continue to appear. It is worth noting that in the process of economic recovery, the commodity nature of silver will be supported, and the price of gold and silver is expected to fall.
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