Gold has continued to decline since hitting a new high in mid-to-late May, with a maximum decline of 6.21% during the period, and gold prices are more correlated with the impact of the Fed's statement. In the past two months, the Fed's interest rate cut expectations have continued to swing with the release of inflation data, employment and other data. Where does gold investment go from here?
Data source: wind, as of June 25, 2024
First, the expectation of interest rate cut has been postponed again
On the news side, on June 25, Fed Governor Bowman said in a speech on monetary policy and bank capital reform that she believes "a number of upside risks to inflation" will affect her outlook for monetary policy. She expects U.S. inflation to remain elevated for some time, and there are some upside risks to inflation. She does not expect a rate cut in 2024, delaying the expected rate cut until 2025. As the most hawkish Fed official at the moment, Bowman is one of the very few policymakers who does not expect a rate cut this year.
Affected by this, CME "Fed Watch", the market expects the probability of the Fed cutting interest rates in September to fall to 66.3%, and the probability of keeping interest rates unchanged is 33.7%; The probability of an interest rate cut in November fell slightly to 78.6%, and the probability of keeping the interest rate unchanged was 21.4%.
Second, is Yang Ma still buying?
A recent survey by the World Gold Council showed that most of the 70 central banks surveyed expressed a preference for increasing gold purchases and reducing dollar holdings over the next five years.
In May, the mainland suspended gold purchases after 18 consecutive months of net gold inflows. This may not necessarily mean that official holdings in other institutions, such as sovereign wealth funds, have stopped, according to the analysis. Historical data shows that China's gold holdings increased by 604t in June 2015, as a result of the PBOC's long-term transfer of gold to foreign exchange reserves, rather than a massive market purchase. As a result, China's central bank may still be accumulating gold behind the scenes.
Analysts noted that even if China's purchases slow, global central banks are expected to buy 273.7 tonnes of gold this year, and gold prices will remain supported by strong purchases.
3. Does gold still have allocation value?
As for the future performance of gold, the market bullish view is still the mainstream. Analysts believe that the short-term gold price trend will continue to be influenced by the uncertainty of the Fed's monetary policy, and the long-term trend is still upward.
The China Gold Association said that in the first quarter of this year, the impact of high gold prices on gold consumption was polarized, and consumer wait-and-see sentiment increased, and gold jewelry consumption was suppressed to a certain extent. The high price of gold and the huge fluctuation have increased the production and operation risks of gold processing and sales enterprises, and the cost of raw materials and shipments of jewelry processing enterprises have increased. With the high price of gold, the decorative value of gold jewelry has been declining in the sense of cost performance, the meaning of investment is relatively weaker, the value preservation function is weakened, and consumers will be more rational in their pursuit of gold jewelry.
JPMorgan Chase & Co. recently said that it remains structurally bullish on gold prices and sees the recent price correction as a buying opportunity, with a gold price target of $2,600.
GF Securities analysis believes that the recent employment pressure in the United States has not decreased, inflation is still in a moderate downward channel, gold prices are disturbed by high-frequency data in the short term, but the Fed is expected to start the interest rate cut cycle unchanged, the upward trend of gold prices remains unchanged, and the sector still has a high allocation value.
Huafu Strategy Research Report said that after the end of the pullback, gold prices will still rise as the Federal Reserve cuts interest rates, or even start early. Therefore, if the gold price pullback has an impact on the corresponding non-ferrous sector of A-shares, it will be temporary, and it will be a good time for the layout of the non-ferrous sector.
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