Global stock markets have been volatile amid looming Fed tightening and inflation continuing to climb.
Investors are starting to ask the question - where is the hiding place?
Is gold, which is often vulnerable to rate hikes but still known as a safe-haven asset, a good place to go?
Recently, an anomalous situation has drawn attention - the rise in US real yields (nominal bond yields - inflation expectations) has coincided with a surge in gold prices.
Generally speaking, as a non-interest-earning asset, gold is more inclined to rise when the real yield is lower, but the recent trend is contrary, which may be related to the weakening of the US dollar, and may also be related to changes in the market's buying and selling momentum.
A number of futures traders told reporters that from a technical point of view, the price of gold seems to be breaking through soon. If it can stand at the resistance level of 1845~1855 and continue to rise, it may rise to 1950 in the market.
Even with limited gains on rate hike expectations, it could be a useful tool to balance portfolio volatility.
As of 16:52 on February 9, Beijing time, the international gold price was reported at US$1,828.15 per ounce.
Louise Street, a senior analyst at the World Gold Council EMEA (Europe, Middle East, Africa), told Yicai Global: "Rising interest rates have fueled some investors' risk appetite, which is also reflected in the outflow of gold ETFs. However, under the influence of the central bank's gold purchases, investors' pursuit of safe-haven assets has also promoted the increase in the purchase of gold bars and gold coins. In 2021, central banks of various countries will increase their gold holdings by a total of 463 tons, an increase of 82% compared with 2020. "
Gold is still brewing a breakthrough under the expectation of interest rate hikes
It is expected that the Fed will raise interest rates 4 to 5 times this year, and quantitative tightening (QT) may start in June. However, the price of gold has not been deterred by the expectation of rising interest rates recently.
In December last year, the price of gold fell to a low of $1,753, then began to rebound, and broke through the key resistance of $1,834 in one fell swoop after late January, once reaching the key resistance of $1,840.
Recently, as geopolitical risks eased slightly, the price of gold fell slightly to around $1,820.
But traders believe that the trend in gold prices is not over.
Affected by stronger-than-expected U.S. jobs data last week and the hawkish Bank of England and European Central Bank, the real yield on U.S. 10-year bonds closed higher, trading at -48 basis points at the start of the week.
The yield was also quoted in deep negative territory of -117 basis points in mid-November 2021.
"But the rise in real yields did not act on gold to cause its price to fall. Instead, gold prices continued to hit upwards." Tony Sycamore, a senior commodity trader and analyst at City Index, told reporters that part of the reason was the dollar index callback.
After the European Central Bank and the Bank of England meeting last week, the high point of the US dollar index fell, providing support for the downside of gold. Generally, there is an inverse correlation between the trend of gold and the US dollar index.
"It's also worth noting that although the dollar index rebounded to a new high of 97.44, gold still held the December low of 1753, which is a typical example of a bullish divergence in the relationship between the gold markets." Sika Moore said that although the latest The CFTC holdings data showed that the net position of COMEX gold held by active funds was more than halved last week, and the net long position fell to a 3-month low of 49,914.
But this short-term profit-taking may have been offset by buying demand from long-term investors, including central banks.
For example, the largest gold-backed ETF, SPDR Gold shares, recently recorded its largest daily inflow in dollar terms since it went public in 2004.
It is expected that the US CPI to be announced this week will further climb to 7.3% from 7% last month. In the eyes of many traders, unlike the situation in 2018, the main driver of gold prices will no longer be real gains. rate, but rather the strength of investors buying gold to combat fiat currency devaluation or inflation, stock market volatility and geopolitical tensions.
"From a technical point of view, the wedge that has plagued gold in the past six months is shrinking, warning that a breakthrough is imminent. If the price of gold can stand at the resistance level of $1845-1855 and continue to rise, the market may rise to $1950." Sika Moore said.
Most international investment institutions believe that this round of the federal funds rate may rise from 0 to around 2.25%, but this does not mean that gold has no allocation value.
In the context of monetary tightening and high inflation, the decline of equity assets may fluctuate sharply or is inevitable. Adding gold to the investment portfolio will play a role as a stabilizer.
Street also mentioned to reporters: "The price of gold may be affected by real interest rates, and such market fluctuations have an adverse impact on gold. However, due to rising inflationary pressures at the beginning of this year and the possibility of market corrections, gold has become a Demand for hedging tools will persist. In addition, consumer and central bank demand will likely continue to support gold demand.”
Global gold demand hits highest level in two years
It is worth mentioning that the World Gold Council also mentioned recently that the global demand for gold has reached the highest level in the past two years, which is closely related to the recovery of consumption and the consumer mentality against inflation.
The Association's latest "Global Gold Demand Trend Report" shows that the total global gold demand (excluding OTC transactions) in 2021 will reach 4,021 tons, which has gradually recovered from the impact of the new crown epidemic in 2020.
Global gold demand in the fourth quarter of 2021 was 1,147 tonnes, the highest quarterly level since the second quarter of 2019 and an increase of nearly 50% year-on-year.
Global demand for gold bars and coins rose 31% year-on-year to an eight-year high of 1,180 tonnes as retail investors sought safety amid rising inflationary pressures and ongoing economic uncertainty caused by the COVID-19 pandemic.
At the same time, the data also showed that global gold ETF holdings fell by 173 tons in 2021 as some tactical investors scaled back their hedging investments when the new crown vaccine was launched at the beginning of the year, and rising interest rates increased the cost of gold holdings.
"However, these outflows represent only a fraction of the 2,200 tonnes of cumulative inflows to gold-backed ETFs globally over the past five years, suggesting that investors will continue to focus on the value of gold as an important part of their portfolios," Street told reporters.
Among them, China has a strong momentum.
By the end of 2021, the total holdings of Chinese gold ETFs stood at 75.3 tons ($4.4 billion, 27.8 billion yuan), the highest level in history.
Following the inflow of 3.4 tons in the fourth quarter, domestic gold ETFs achieved a net inflow of 14.4 tons in 2021, in sharp contrast to the net outflow of 198.8 tons in Western markets.
Except for the second quarter, China gold ETFs achieved net inflows in the remaining quarters.
In terms of consumer demand, the global gold jewellery consumer demand will recover in 2021, which is basically the same as the total volume of 2,124 tons in 2019 before the epidemic.
This was helped by a strong fourth quarter, when global consumer demand for jewellery reached its highest level since the second quarter of 2013.
Notably, the average gold price in 2021 is 25% higher than in the second quarter of 2013, further underscoring the strong demand in the most recent quarter.
China and India have always been big consumers of gold.
In 2021, China's gold jewelry demand will reach 675 tons, a year-on-year increase of 63% and 6% higher than 2019.
Buying gold has always been a popular consumption during the Spring Festival holiday, and this year is no exception.
The reporter learned from many gold shopping malls in Beijing and Shanghai that the sales of gold during the seven days of the Spring Festival increased by more than 30% year-on-year, and among the purchasers, post-90s and post-00s accounted for a considerable proportion.
Wang Lixin, CEO of the World Gold Council China, told reporters that in 2021, the demand for gold jewelry in the Chinese market will increase by 63% year-on-year. The main drivers of growth include stable economic growth, low gold prices and high weights such as ancient gold jewelry. product popularity.
The power of global central banks should not be underestimated.
In 2021, central banks will increase their holdings of gold by a total of 463 tons, an increase of 82% from 2020.
Many central banks from emerging and developed markets have increased their gold reserves, bringing the total amount of global central bank gold reserves to the highest level in nearly 30 years.
Going forward, how the central bank responds to persistently high levels of inflation will be key to influencing institutional and retail gold investment demand in 2022.
At the same time, the current strong momentum of the jewellery market may be thwarted if the new coronavirus variant strains again limit consumer activity or affect the continued recovery of the economy.
Author: Zhou Erin