Sino-Singapore Jingwei Client July 27th (Wu Yihan) US$1910/oz! $1,920 per ounce! 1930 US dollars / ounce! 1940 US dollars / ounce! On July 27, the international spot gold price (based on the London spot gold price, hereinafter referred to as the international gold price) continued to rise sharply during the intraday session, constantly setting new record highs.
According to industry insiders, the recent rise in the price of gold is related to the implementation of loose economic policies by various countries in response to the impact of the epidemic, which has led to an increase in market expectations of inflation; in addition, the continued weakening of the US dollar has also become an important factor in the rise of gold prices. .
However, as the international gold price has reached historical highs and its future trend, market views have begun to diverge. Some analysts pointed out that the price of gold may continue to hit the $2,000/oz mark in the future, and some voices believe that the price of gold has reached a local high and investors need to pay attention to adjusting risks.
International gold prices rose sharply on July 27. Source: Wind
Why did the price of gold accelerate in July?
As of press time, the international gold price rose by 1.78% to $1,934.06 per ounce, and rose 3.08% to $1,944.48 per ounce during the intraday high, setting a record high. The previous historical record of international gold prices was $1921.15 per ounce on September 6, 2011.
Since mid-July, international gold prices have accelerated. A set of obvious data is that after the international gold price broke through US$1,700 per ounce on April 13, it took nearly three months to break through US$1,800 per ounce on July 8, and from US$1,800 per ounce to US$1,900 per ounce (July 24), but it only took less than 20 days.
According to industry insiders, the price of gold is mainly affected by factors such as inflation expectations and the strength of the US dollar index. In recent times, the economic easing policies implemented by many countries have pushed up the market's inflation expectations; the continued development of the US epidemic has inhibited its progress in resuming work and production, making the dollar index continued to fall and other factors have promoted the rise of international gold prices.
Xu Ying, senior analyst at Topix Futures, believes that the accelerated rise of international gold prices in mid-to-late July was mainly driven by three factors:
First, on July 21, local time, the European Union reached an agreement on a 750 billion euro recovery fund. The rescue threshold was lower than the rescue threshold during the European debt crisis. Superimposed on the factors that the second round of US fiscal stimulus is about to be launched, the market's expectations for inflation have risen.
Second, the recent tensions in international relations have triggered risk aversion in the market, risk assets have fallen, and funds flowed to safe haven assets such as bonds and gold.
Third, economic data such as the number of initial jobless claims in the United States and the manufacturing PMI index have weakened, indicating that the US epidemic has once again repressed the economy after the worsening of the epidemic. In sharp contrast, the Eurozone manufacturing and service PMI data exceeded expectations across the board , Showing that the epidemic control in Europe is relatively better. The euro rose significantly while the dollar weakened, which is bullish for gold.
Jiang Shu, chief analyst of Beijing Jinyang Mining, told the Sino-Singapore Jingwei client that the increase in the price of gold in this round can be based on the gold price trend between 2008 and 2011 to a certain extent. After the subprime mortgage crisis, in order to recover the economy, the Fed carried out three rounds of quantitative easing in 2008, 2010, and 2012. At that time, the price of gold started at the end of 2008 and rose all the way to the historical high in 2011.
"Now, in response to the impact of the new crown pneumonia epidemic on the economy, countries have begun to implement quantitative easing policies. As a result, international gold prices have risen all the way. However, compared with the previous round of gold price increases, this round of gold prices has risen even more sharply, breaking through. The time for new highs is also shorter. It can be said that the market this time is a condensed version of the previous round of gold price trends." Jiang Shu said.
Can gold continue to rise in the future?
However, as the price of gold continues to rise, the market's views on the future trend of gold prices have begun to diverge.
Xu Yang, chairman of Shanghai Maicorong Information Consulting Co., Ltd., said he is still bullish on gold. He believes that the three main factors affecting the long-term trend of gold prices are the US dollar, oil and the global economic situation. In the context of a weaker U.S. dollar, global monetary easing, uncertainty about the epidemic, and lingering risk aversion, it is only a matter of time before the price of gold is expected to exceed $2,000 per ounce.
Industrial research analysts Guo Jiayi and Fu Xiaoyun pointed out in a research report on July 9 that the two major factors that will drag down the trend of gold in the second quarter of 2020-sluggish demand in emerging markets and the lack of willingness of hedge funds to do more gold. Positive changes are currently taking place. In the next 3-6 months, the price of gold is even expected to challenge a record high of $2,000 per ounce.
However, in Jiang Shu's view, the current international gold price has reached a local high. Although there is still a chance to rise slightly under the upward trend in the short term, if there are no special circumstances, there is little room for the overall price of gold to rise. "The high point of the last round of gold price increase was in 2011, not after the third round of quantitative easing in the United States in 2012. The reason for this is that the economic data of the United States began to appear in 2011. For the better. Therefore, the extent to which the price of gold can rise this round depends mainly on the impact of the new crown pneumonia epidemic on the world, especially on the US economy."
Jiang Shu believes that from the current situation, although the situation of the new crown pneumonia epidemic in the United States is still severe, its unemployment rate and other economic data are less likely to deteriorate further. Therefore, unless the epidemic in the United States deteriorates significantly in the future, the United States has to implement negative interest rates. Policies and other actions to further stimulate the economy, otherwise it will be difficult for gold prices to continue to rise sharply.
Be alert to the risk of short-term callbacks in gold prices
Against the background of the hot gold market, many market participants have also begun to alert investors of risks, and Chinese regulatory authorities have also taken steps to increase the margin ratio of gold deferred contracts to prevent related risks.
On July 22, the Shanghai Gold Exchange issued a document to increase the price limit of various gold deferred contracts from 7% to 8%, and the margin ratio from 8% to 9%. It also requires all member units to do a good job in risk prevention, appropriately adjust the margin collection ratio according to the customer's position and risk situation, remind investors to operate cautiously, invest rationally, and reasonably control the scale of positions.
Fu Xiao, Head of Commodity Strategy at BOCI, pointed out that since the current market rebound is mainly driven by speculative funds, and speculative funds may leave the market soon, this means that when the bullish sentiment subsides, the price of gold will pull back.
Li Yun, a senior analyst at Beijing Jingsong Investment, also advises investors to avoid blindly chasing the rise and fall of gold. At the same time, she specifically reminds investors that they must not hold on the assumption that they should pull back because they rise too much and carry out reverse short operations .
Jiang Shu said that from the perspective of technical indicators, the price of gold is now at a serious technical overbought level. Under this circumstance, if the United States recently disclosed more optimistic economic data, or if the U.S. dollar showed a corrective rebound in the short term, the price of gold is likely to undergo a sharp correction, and investors should pay attention to related risks. (Zhongxin Jingwei APP)
(The opinions in the article are for reference only and do not constitute investment advice. Investment is risky, and you need to be cautious when entering the market.)
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