The price of COMEX gold has fluctuated since December. At the beginning of this month, the expectation of the US fiscal stimulus plan led to a strong rebound in the price of gold. In the middle of the month, as the negotiations on the US fiscal stimulus package reached a stalemate, the COMEX gold price hesitated and turned down after hitting a high of 1879.8 US dollars / ounce, while the Shanghai gold 2102 contract was subject to resistance of 400RMB / g. Gold prices rebounded again this week, boosted by the weakness of the dollar and expectations of a new stimulus package in the US. The short-term long-short intertwined pattern will continue, and the rise in gold prices still lacks the basis.
The dollar fell in tandem with the price of gold
The recent sharp decline in the dollar index to its lowest level in more than two years is due to the following reasons: first, the worsening epidemic in Europe and the United States may further strengthen the blockade measures in the short term, adding to the weakness of the US job market and increasing the possibility of a new fiscal stimulus in the United States before the end of the year; second, as the Electoral College officially announced the election results on Monday, Senate Majority Leader Mitch McConnell recognized Biden as president-elect. Third, Britain's "Brexit" has made progress, and the rebound in superimposed commodity prices has led to a rise in non-US currencies such as sterling, euro and Australian dollar.
At the same time as the dollar index fell, the price of gold fell not from a weak dollar but from both. From the perspective of correlation, the correlation between dollar index and COMEX gold price is 0.469 in the past three months, and 0.065 in the past month, indicating that there is not only no negative correlation between dollar index and gold price, but also a weakening trend.
In the later stage, we believe that the US fiscal stimulus will continue to put pressure on the dollar index, but the US economic fundamentals still have a comparative advantage over Europe, which limits the room for the dollar index to decline further. The current weak correlation between the dollar and gold is not persistent and may be repaired later. Given that the dollar index will remain weak, it will still support the price of gold.
Us fiscal stimulus negotiations enter a critical period
For the partial rebound on the way of this round of gold price decline, we believe that the hype of the US fiscal stimulus package is the main logic of the rebound. A new round of US fiscal stimulus has dragged on since September, dragging on gold prices. At present, a new round of fiscal stimulus negotiations in the United States will enter a critical time window. On the one hand, Christmas is approaching, and the US Congress will be on holiday until the end of the year. If there is still no progress in this week's vote, the probability of a new round of fiscal stimulus passing this year will become relatively low. On the other hand, the presidential power of the United States is in the handover stage, and the final outcome of the bipartisan struggle for control of the Senate will not be known until January next year, and it is uncertain whether the fiscal stimulus package can be passed at a time when the two parties in the United States are still deeply divided.
We believe that in the short term, there are optimistic expectations for a new round of fiscal stimulus in the United States before the end of the year, and if such expectations fail, gold prices are at risk of falling back.
Inflation expectations have risen
From the perspective of driving factors, there is a Synchronize relationship between inflation expectations and gold prices. There have been clear signs of a recent rebound in inflation expectations, with the spread between (TIPS), a five-year US inflation-protected bond, and regular five-year Treasuries, meaning that TIPS break-even inflation has rebounded to near a phased high of 1.86 per cent since December. The rebound in inflation expectations is due, on the one hand, to the expectation of a new round of fiscal stimulus in the United States and the higher-than-expected progress of vaccines to boost market sentiment, and investors expect a rise in inflation to come; on the other hand, there has been a relatively obvious rebound in international crude oil prices recently, with various institutions raising their expectations for future oil prices one after another under the stimulation of many positive factors.
In the later stage, we believe that with the progress of the vaccine and the gradual repair of the US economy, the Fed's monetary policy will enter a relatively stable period, low interest rates will continue, and a new round of fiscal stimulus package in the United States is expected to accelerate after Biden takes office, raising inflation expectations in the United States. As inflation continues to pick up, it will be conducive to a further decline in real interest rates and good for gold prices in the medium and long term.
Institutions wait and see carefully on gold
Judging from recent institutional positions, institutions have shifted from a bearish attitude towards gold to a cautious wait-and-see since December with increased global macro uncertainty and high adjustments in US stocks. Global gold ETF positions fell in November for the first time in a year and the second highest monthly net outflow in history, according to the World Gold Council. The position of SPDR Gold ETF, the world's largest gold fund, has fallen by 87.52 tonnes to 1170 tonnes since November, with a marginal slowdown since December. SPDR Gold ETF has reduced its positions by 24.63 tonnes, with an average daily reduction of only 2.24 tonnes. From the perspective of CFTC positions, CFTC gold non-commercial net long overall increased by 4732 hands in November, compared with a cumulative increase of 25318 hands since December.
In the later stage, we believe that when the market demand for safe haven decreases after the US election, the institutional demand for gold allocation will depend on two aspects: on the one hand, whether there will be a correction in risky assets represented by US stocks; on the other hand, whether the US fiscal stimulus package can be passed. Institutions are expected to be cautious about their positions in gold.
Outlook for the future
In the short term, the higher-than-expected progress of vaccines, the deterioration of the epidemic in Europe and the United States, the process of Brexit and the fiscal stimulus package in the United States have all contributed to the disturbance of gold prices. After the US presidential election, the demand for risk aversion in the market declined, institutions' positions in gold entered the observation period, while the weak dollar only played a supporting role in gold prices, so the US fiscal stimulus package has become the leading factor in the recent trend of gold and silver prices.
This week's Fed interest rate meeting was dovish, supporting gold prices, but not stimulating gold prices, and the core of short-term gold trading is still the US fiscal stimulus package. Gold prices will be boosted if there is substantial progress in the US fiscal stimulus package before the end of the year, but it will be more difficult to break through the mid-year highs, and the upside in gold prices will be hampered against the backdrop of higher-than-expected vaccine progress. But once expectations of fiscal stimulus fail, gold prices will return to the downward trajectory. Short-term Shanghai gold 2102 contract below the first support of 370yuan / g, while the top faces the resistance of 395yuan / g formed by the downward channel.
In the medium term, the tone of global monetary easing has not changed, the prospects for economic recovery will be further raised after the vaccine is put into use, global inflation expectations will be strengthened, and the debt problem in the United States remains the main factor limiting the reversal of the dollar index. Gold prices will continue to be supported by inflation expectations and a weak dollar.
