(Financial World) Gold "kidnapped" by the US dollar
China News Agency, Beijing, July 18th: Gold "kidnapped" by US dollars
Author Liu Wenwen
Since the beginning of this year, affected by the geopolitical situation and the global economic situation, the price of gold has fluctuated violently. Recently, the international gold price has hit a new low in nearly ten months.
Why does the price of gold keep falling?
Has gold lost ground?
Gold prices 'falling and falling'
After the outbreak of the Russian-Ukrainian conflict, the price of gold as a safe-haven asset soared.
However, after the spot gold in London reached the stage highs of US$2,070 per ounce and US$1,998 per ounce on March 8 and April 18, respectively, it started the road of "falling and falling".
Since the beginning of this year, the geopolitical situation has been complicated and volatile, global inflation has intensified, and major economies have embarked on the path of raising interest rates one after another, causing widespread concern among investors.
With the Federal Reserve raising interest rates, the gold market is in a turbulent situation, and the price of gold continues to fluctuate.
As of July 15, the price of gold futures on the New York Mercantile Exchange closed at $1,703.6 per ounce, and the international gold price continued to drop, hitting a new low in nearly ten months.
Gold "kidnapped" by the dollar
The latest data from the U.S. Department of Labor showed that the U.S. consumer price index (CPI) rose 1.3% month-on-month in June and 9.1% year-on-year.
Unexpected inflation not only increased the burden on the American people, but also laid the foundation for the Federal Reserve to raise interest rates sharply again.
According to media reports, Fed officials signaled that they may raise interest rates for a second time by 75 basis points at their meeting later this month as part of aggressive measures to combat high inflation.
Under the expectation of the Federal Reserve raising interest rates, the liquidity of the US dollar has tightened, and the risk aversion in the market has increased in the context of the global economic recession, resulting in a strong appreciation of the US dollar.
Last week, the dollar index was close to 109.30, the highest since September 2002.
Gold is a recognized safe-haven asset with "anti-inflation" properties.
Thus, in general, high inflation is bullish for gold.
So why is the price of gold falling?
The World Gold Council pointed out that at present, the focus of investors' concerns about the US economy has shifted from "high inflation" to "recession", which has also led to the adjustment of their investment portfolios.
As a result, the current drop in commodity prices is largely caused by investors slashing their portfolios to hedge their risk amid recession fears, which in turn affects gold.
Analysts believe that with the strengthening of the U.S. dollar, the bulk commodities priced in U.S. dollars are under greater negative pressure due to rising purchase costs, resulting in frequent declines in the price of gold.
The World Gold Council continues to analyze that many traders regard $1,800 per ounce as an important support level. After the price of gold falls below this support, it may trigger chain closing long positions and short positions. In summer, gold is usually weaker. Seasons and India's sudden increase in import duties on gold added to the level of pessimism among traders.
When is the flight now?
The negative impact of the strong dollar on gold continues to be released. When will the price of gold return to rationality?
According to Ye Fan, chief macro analyst at Southwest Securities, the most fundamental reason affecting the trend of gold is the trend of economic fundamentals.
A number of recent forward-looking indicators point to signs of a slowdown in the U.S. economy. At present, the Federal Reserve prioritizes controlling inflation, while also increasing its consideration of the potential slowdown of economic growth. It is expected that the short-term interest rate hike will continue to be large. The mid-term elections and the increasing downward pressure on the economy, the Fed's tightening policy may gradually slow down, which will form a certain support for the upward trend of gold prices.
Ye Fan further pointed out that with the interest rate hike in the euro zone in the third quarter, the appreciation of the dollar may slow down, but the overall uncertainty is strong.
Since the U.S. dollar is the price currency of gold, the U.S. dollar and gold are roughly inversely correlated, and the U.S. dollar may drive gold to rise slightly.
Soochow Securities believes that the trend of gold prices this year will always depend on the intensification of inflation and the rise in real interest rates.
The period of rapid rise in real interest rates has passed, and potential geopolitical risks, represented by the US midterm elections, remain.
From a historical point of view, gold tends to perform well under the US economic recession and geopolitical crisis, which can be optimistic about the performance of gold in the fourth quarter.
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