Wei Xin Weekly Review: History proves the dollar interest rate hike cycle
It is not possible to stabilize prices in time to suppress gold
March 18, 2022 Weixin Investment Consulting and Research Center
Chief Analyst Yang Yijun
preface
Market, economic, financial cycle, there are always so many coincidences, customers are often surprised at why we can be so meticulous in time to find those very interesting "coincidences", not because of how good the memory is, but because we have established a lot of analysis modules and models for various markets, economy and finance, and constantly calculate and capture signals and remind them.
On March 16, 2020, under the impact of the new crown epidemic, the Fed quickly ended the last interest rate cut cycle, bringing the US federal funds rate back to a historical low of 0-0.25%. The last time the interest rate was low, it was set in the United States in 2008 after the impact of the subprime mortgage crisis.
Two years later, in 2022, also on March 16, the Fed ended zero interest rates and pushed open the window of the dollar rate hike cycle.
On March 8, 2021, the international spot gold price bottomed at $1676.71, with a medium-term adjustment of the bottom.
A year later, in 2022, also on March 8, the international gold price peaked at $2070.42, and we told our customers that this "anniversary" of about $400 increase may correspond to the top of the gold price stage. We also brought great profits to new and old customers, and the short short established by the backhand last week was fully cashed in in the first half of the week.
Even if we continue to be optimistic about the medium- and long-term gold price and believe that the logic of the gold medium- and long-term bull market is clear, it is still not excluded that there is still a possibility of stepping on the margin of safety short. Of course, going long at a low price is still the main tone of medium-term operation. Wednesday's US market, a few hours before the interest rate hike, we judge that after the revelation of the US dollar interest rate increase, the gold price may be near the rebound of $1950 on the same day or the next day, so wednesday night is recommended that customers hang orders at $1948 to short. However, after the interest rate was revealed, the gold price fell to $1895, and only rebounded strongly to $1930. The next Thursday, gold pumped back the $1950 we judged. Why judge this anti-pumping target? Consider the "singular" hourly line in the previous daily review, where the top of the two patterns on the left is located near $1950. However, we cancelled the $1948 short pending order in the morning, fearing a sharp "pulse" of uncertainty, but there was no pulse in the actual market of gold prices on Thursday.
Overnight on Wednesday (March 16), the Fed unsurprisingly pushed open the window of the dollar rate hike cycle for the first time since 2018.
In a post-meeting statement, Powell said the U.S. economy is very strong and should "flourish" even in an environment of rising borrowing costs and the withdrawal of stimulus measures. I don't believe this, just as I didn't believe in Powell's inflation "temporary theory" with Yellen in the 2-3 quarters of last year.
The author believes that the general situation in the United States this year and next year is:
This year, the Fed will continue to raise interest rates, and even every Fed interest rate meeting will raise interest rates. But we will not see signals of a significant decline in U.S. prices this year. Even in the second and third quarters, and even throughout the year, we will see the "harmonious" and "normal" phenomenon of US interest rates and prices rising in tandem, although this is different from the intuitive "feelings" of many investors.
According to our information on the systemic quantitative tools of the US macroeconomic finance, there will be no systemic economic and financial risks in the US this year, and even the US stock market has better structural opportunities. But 2023 will be a very difficult year for the US economy and finance, and even a year for the financial "hard landing" of the mid-cycle economy and finance, and a year in which inflation will really fall.
But what is uncertain is what kind of despicable means the Biden administration will resort to to the international community to divert the ECONOMIC and financial woes of the United States, just as it did this year to provoke the Russo-Ukrainian war.
When the United States is in a quagmire, it "can't stand" so-called "competitors" standing on the edge of the mire and watching it struggle, and it will do its best to drag all opponents and allies into the mire to struggle or "wrestle.". Even if it is "uglier", it will sacrifice all kinds of "means" without image limits, and it is committed to not being the ugliest. Just like the 2008 U.S. as the epicenter of the financial crisis, it passed high. Laying the thunder in Greece, just as the European debt crisis hit Europe hard.
2023, and cherish! Gold should be your best choice!
1 Weekly summary
This week, the international spot gold price opened at $1984.48, the highest test of $1990.31, the lowest down to $1895, as of Friday's Asian noon close at $1939.1, down $48.55, down 2.45%, the weekly K line showed a long shadow long yin line first suppressed and then raised.
This week, the Wellxin International Precious Gold Index opened at 5997.33 points, the highest test was 6007.42 points, the lowest probe was 5448.21 points, and as of Friday's Asian afternoon, it closed at 5743.56 points, down 271.83 points, down 4.52%, and the weekly K line was similar to gold prices, showing a long yin line in the shadow of first suppressing and then rising. During the year, the precious gold index rose by 15.24% and the gold price rose by 6.15%.
This week, the dollar index opened at 99.107 points, the highest test was 99.297 points, the lowest was 97.724 points, and as of Friday's Asian afternoon session, it closed at 98.001 points, down 1117 points, down 1.14%, and the weekly K line oscillated down the long yin line.
The overall volatility of both the US dollar and the gold market this week is in line with the analysis judgment of our internal report to our clients at the end of last week. In the first half of the week before the revelation of the US dollar interest rate, gold prices will continue to fall, which should be tested near the 80.9% golden section of the 80.9% gold section of the retracement of the rising band ($1878.03-2070.42) after the start of the Russo-Ukrainian War. The downward support is the 61.8% golden section near $1950 and the 80.9% golden section near $1913, so it is recommended that new customers be short at $1890 in early Asian trading on Monday, and old customers continue to lock in the bears established last week. At the same time, we further emphasize that the short-term or phased $1910/1930 support is strong, but it is still not ruled out that emotional inertia will break through it, or even sharply, and may not be in this week. In the medium term, the $2,000 block will need to be digested repeatedly. In the medium and long term, the tone and logic of the gold bull market remain unchanged. When the Fed opens the time window for the dollar to raise interest rates, it may also open the time window for the dollar depreciation cycle.
Originally planned to let customers close the short-term position near $1950 on Monday, do you know the Asian and European disk before the US market, the gold price unilateral decline is gentle, that is, do not accelerate the downward trend, the intraday rebound is also very weak, so we adjusted the proposal in time, sharply lowered the short profit target, and judged that monday new York end of the day will be reported near the lowest price of the day, forming a bald long yin.
On Monday, the dollar index shook sharply before the interest rate hike was about to be revealed, but the New York ended "tenaciously" higher. This "tenacious" appearance has the flavor of using the shelter painting K-line that is about to be revealed.
Before Tuesday's US session, gold prices performed exactly the same as On Monday, falling steadily, not in a hurry, but with a huge cumulative decline. Throughout Tuesday's session, the dollar index tick chart was like a copy of Monday, still taking advantage of the positive before the rate hike, and the bulls cashed in profits, but the New York end of the session drew a candlestick higher.
After the Fed's interest rate decision was announced overnight on Wednesday, there was no surprise, and after the dollar quickly pulsed upwards, it quickly turned around and went down, and the decline ran through the entire Thursday session. Commodities and gold fluctuated in reverse, and recovered strongly after a rapid downward dip. "Good landing to see the bearish, positive to the negative landing to see the good", at least in the short term.
Gold prices bottomed out on Wednesday and the commodity market rebounded, and thursday continued to rebound, greatly changing the bearish pattern of the first half of the dynamic "Evening Star" K-line combination. But this is still a dynamic pattern, and Friday's close has not yet been fixed. In addition, the "Shooting Star" of the monthly dynamic should be extremely difficult to repair. Therefore, even if we are optimistic about medium- and long-term gold, we need a little more patience, a little more preparation, and a little more rationality. Perhaps, many investors are still savoring the recent embarrassment of blindly following the tide of emotions. Be steady, slow is fast!
2 The current situation of the geopolitical crisis in Russia and Ukraine
The essence of the Geopolitical Crisis in Russia and Ukraine is as the US independent investigative journalist Benjamin Norton said in an exclusive interview with CCTV reporters that the United States and other Western countries do not want the Ukraine crisis to end as soon as possible. Benjamin Norton has studied a large number of historical archives and published articles pointing out that the United States and NATO want to use the situation in Ukraine to stimulate Russia to take military action in order to achieve the purpose of sanctions against Russia. Therefore, in a short period of time, neither the United States nor NATO wants the Ukraine crisis to end as soon as possible.
The author has always held the view that the Geopolitical Crisis in Russia and Ukraine is not so easy to end. Even if Russia overthrows the Ukrainian authorities and establishes a pro-Russian regime in Ukraine. The United States has long begun to establish a government-in-exile for Zelenskiy in Poland, and the attack on ukraine's New Deal and Russia will not stop, and may occasionally provoke pro-American forces to counterattack. If Russia and the Ukrainian authorities reach a so-called "reconciliation", it may simply turn a pile of open flames into a smouldering fire, which may be ignited at any time. So even if Russia wants to reconcile with the Ukrainian authorities, it is important for Putin to ask Ukraine to arm and nazi.
In a public speech at the White House on Wednesday, US President Joe Biden announced the provision of additional military assistance of $800 million to Ukraine, including "switchblades" and "stingers", continuing to add fuel to the fire of the situation in Russia and Ukraine. That brings the U.S. commitment to security assistance to Ukraine totaling $1 billion over the past week. Since the biden administration's inception, U.S. aid to Ukraine has totaled $2 billion.
The new assistance will include 800 Stinger anti-aircraft missiles, 9,000 anti-tank missiles, 7,000 sets of small arms and 20 million rounds of ammunition. Also included is the "100 tactical unmanned aerial vehicle system", the UAV is a small, light individual weapon, called the "spring knife", can be operated by infantry, and the kind of large anti-tank missiles can be launched "Predator", "Reaper" unmanned attack aircraft is not the same. Western officials say Ukraine is already using Turkish-made drones to resist Russian armored vehicles.
In Europe and within NATO, there is much disagreement about how to respond to U.S. sanctions against Russia. To a large extent, this kind of disagreement means that NATO and the European Union are likely to "split", at least at the psychological level. However, this kind of division, the United States is happy to see, the United States may be happy to see the disintegration of NATO, happy to see the disintegration of the European Union, and even happy to see the demise of the euro.
At present, among NATO, important members such as France and Germany regard NATO as a tool and a gun for the United States, and the constraints are obvious. In addition, there are relatively "neutral" NATO members such as Italy and Turkey. The essence of not daring to restrain and being neutral means that it does not agree with the US approach, but "does not dare" to restrain it.
If NATO disintegrates, the United States will believe that neither the economic alliance nor the military bloc will compete with it. By decentralizing loyal minions such as Poland and the Baltic states, it is easier to achieve exclusive global hegemony as desired. To hit Europe hard, to hit the EU hard, to hit the euro hard, to strengthen the global hegemony of the dollar.
The United States has become prepared to legislate against Russia's personal property, and there is no credit limit. Raising the logic of robbers to the height of law really opens the eyes of the world to "American democracy and freedom, and personal property is inviolable"! U.S. Democratic Senator Sheldon Whitehouse said U.S. lawmakers are drafting a bill that would allow U.S. authorities to confiscate the private property of those targeted at Russia and use the proceeds to help Ukraine.
Last month, the U.S. robbed the Afghan government of about $7 billion. According to white house notes issued in response to the executive order, Biden demanded that the Central Bank of Afghanistan's approximately $7 billion in assets in the United States be divided equally, half of which would be used as a source of funds to compensate the victims of 9/11, and the other half would be transferred to an account at the Federal Reserve Bank of New York to help the "Afghan people," while making it clear that the assets would not be returned to the Taliban. Is there a more pale and shameful reason to rob Afghanistan of money and help the "Afghan people" on behalf of the current Afghan government?!
On March 16, local time, Abdul Hadi Nijrabi, deputy director of the Afghan Embassy in the United States, said that the Afghan embassy and consulate in the United States had been closed. Embassy and consulate property in Washington, Los Angeles and New York is being handed over to the U.S. Department of State. According to previous reports, Citibank froze the bank accounts of Afghan embassies and consulates in the United States after the Afghan Taliban took over Afghanistan, which led to a large number of Afghan diplomats who have not received salaries since October last year.
With regard to the statements of European heads of state on sanctions against Russia, it is not difficult to see that they are roughly divided into these two categories, two categories of differences:
One category, under the pretext of a clearly tendentious human rights and humanitarianism, calls for the intensification of sanctions against Russia. As for the plight of the people's livelihood caused by this, there is no mention of it. It is even more extravagant to hope that it will understand the humanitarian catastrophe caused by the Ukrainian authorities in the Donbass region. Especially british Prime Minister Johnson is the most typical, this concept seems to be only concerned with personal political career, and does not sympathize with the hardships of people's livelihood. If Johnson can do it again, it is a miracle. Can the British economy be spared the crisis caused by sanctions against Russia? Apparently not. Research released on March 12 by the Confederation of Trade Unions (TUC) in the UK suggests that energy bills in the country will grow at least 14 times faster this year than wages. The Uk's trade union confederation said the average UK wage would rise by 3.75 per cent this year, while the ceiling on gas and electricity prices set by the UK's energy regulator (Ofgem) would rise by 54 per cent in April. The coalition noted that record-breaking energy price increases have hit low-income people the hardest. On Wednesday, The British energy expert Vodell said that while Europe imposes energy sanctions on Russia, it must also consider the huge countervailing force that follows. We are very dependent on Russian energy, Russian crude oil and diesel, especially Russian gas. In the currently tight global and European systems, it is extremely difficult to replace it. I rarely hear from Johnson's speech his worries about energy and inflation in the UK, very little!
On the other hand, represented by France, when the authorities talk about sanctions against Russia, they are always worried about the harm to the people's livelihood of their own country. Even those in power who hold the view of withdrawing from NATO are not in the minority. French President Emmanuel Macron has always mediated in the peaceful settlement of the geopolitical crisis in Russia and Ukraine, and he is almost the only "knight" dedicated to the peaceful solution of the Russian-Ukrainian crisis, and other neutrals are at most cheerleaders and even bystanders.
French presidential candidate Le Pen (currently ranked second only to the current president Macron) said in an interview with french BFM TV on the 13th that "providing weapons to Kiev is similar to participating in the conflict." She also said she still supports "France's withdrawal from NATO." Asked about her attitude toward "Western sanctions against Russia," Le Pen stressed that she opposed them because the first victims of the sanctions would be French. "In terms of the proposal for a total embargo on Russian oil and gas, this move would have a disastrous impact on our consumers," she said. I don't want to sacrifice the interests of the French, their jobs and the overall economy of France for what I consider irresponsible. "The best way to help Ukraine is to achieve peace."
It is not difficult to see that on the geopolitical crisis between Russia and Ukraine, French presidential candidate Le Pen and current President Macron agree. Oppose the United States instigating European sanctions against Russia hysterical, valueless, and discredited.
If we can remember the views clearly expressed by French President Emmanuel Macron in an interview with The Economist magazine in 2019, it is not difficult to understand his firm neutrality in this Russian-Ukrainian geopolitical crisis. On November 7, 2019, Macron said in an interview with The Economist magazine: "The United States is turning its back on us, NATO is experiencing brain death"!
Later that same month, NATO Secretary-General Jens Stoltenberg confronted Macron in Paris. However, after the talks, Macron said at a news conference that he would not apologize for comments on "NATO brain death". He still insisted that his comments were a "necessary wake-up call" for NATO. Macron also hopes that the issue of counter-terrorism in the Sahel region of West Africa will be discussed at the upcoming NATO summit, and believes that it will be very useful for NATO allies to strengthen their engagement on this issue. "The real public enemy of the EU is not Russia or China, but terrorism," he said. ”
Combined with the current situation in Ukraine, there is no doubt that Macron is interested in supporting and training New Na in Ukraine for Ukraine, the United States and Canada. Purely, the humanitarian catastrophe in the Donbass region is undoubtedly deeply resented and abhorred! It's just that compared to two or three years ago, he has a lot less diamond horns. Because in the European Union and NATO, there are so many people who pretend to sleep in the abnormal extremist political trend!
On March 17 (yesterday), Macron went on to say that he "will not retract previous claims about NATO's brain death." ”
In the past two months, the views of Germany's newly appointed Chancellor Scholz have "wavered", but at present it seems to be back to the "original intention of the right track". Before February, when the geopolitical clouds of Russia and Ukraine were thick, German Chancellor Scholz, like Macron, sought a peaceful solution between Russia and Ukraine and caused the United States to work to stimulate contradictions between Russia and Ukraine.
But on February 8, German Chancellor Schoelz was invited by Biden to the United States, drank a pot of Biden's ecstasy soup, and came back wrong. The condemnation of Russia began to become more subjective and emotional.
After Russia's special military operation against Ukraine on February 24, Russian President Vladimir Putin, Ukrainian President Zelenskiy, and German Chancellor Scholz wrote three essays on the theme of the Russo-Ukrainian War, which I have read carefully! There is no doubt that Putin's compositions have both vertical historical origins and depth of ins and outs, as well as the breadth of arguments for the current situation of horizontal geopolitics. Although I think that Scholz has returned to the right track and original intention at present, the original article, like Zelensky's level, does not talk about the slightest historical traceability, and only emptyly condemns and laments under the pretext of humanitarianism, freedom, and rights, which is really a smear on the German neutral political position created by Merkel, and it is almost successfully taken by the United States. In 2018/2020, Trump spent too much time trying to take the German rhythm against China, all of which were resolved by Merkel's wisdom. Because she had experienced the United States' bad tricks against the eurozone and the European Union in 2010/2011, Germany was Goldman's first choice. Scams are tied to crisis objects.
Of course, even if Scholz is biased by taking Biden's medicine, the Political Neutrality of Germany created by Merkel is not easy to deviate. Therefore, in Scholz's brief pro-American yaw, the resistance was obvious. On February 27, at a special session of the German Bundestag on Ukraine, when President Bass of the German Bundestag greeted The Ukrainian Ambassador to Germany, Mernik, almost all parliamentary groups gave a standing ovation, with only politicians who chose the party remaining in their seats. Subsequently, the party's representative spoke critical of Scholz's opening of a new Cold War and argued that Ukraine's accession to NATO should not be the subject of discussion. Speaking about the Ukraine crisis, the party believes it is because of the long-standing nato insult to Russia, which is the result of the "defeat of the West".
Fortunately, from the observations of scholz's recent speeches, he seems to have returned to the original intention of working side by side with Macron to the peace between Russia and Ukraine, and Biden's medicine has expired!
Therefore, at present, within the EU, sanctions against Russia have shown two camps, one does not care about the people's livelihood of the country, and the other pays attention to the people's livelihood. According to the Daily Telegraph, EU delegates in Brussels experienced lengthy and intense consultations, with growing differences between member states and even being interrupted for a time. Several EU diplomats say there are already two opposing camps within the EU. Germany, Italy, Hungary and Bulgaria oppose tougher measures, while Poland and the Baltic states have demanded tougher responses. Germany's insistence during the meeting to downplay EU sanctions against Russia, demanding that the products sanctioned exclude important industrial raw materials, sparking outrage from other EU member states. After heated talks, an angry Polish envoy sent an email to 26 other EU delegates expressing his displeasure.
Poland should be the only NATO member to respond to Zelenskiy's call for NATO troops to be sent to Ukraine. When Polish Deputy Prime Minister Kaczynski visited Kiev on March 15 local time, he said at a press conference that it is necessary to send international peacekeeping forces to Ukraine to carry out tasks such as peacekeeping and humanitarian assistance, "I think NATO or a larger international organization should send a peacekeeping force that can defend itself and can carry out tasks on Ukrainian territory."
Perhaps, or because people are "under the roof", they may be insincere. Earlier, when Ukraine offered warplane assistance to Poland, Poland kicked the ball directly at the United States. On March 8, Poland announced that it had decided to hand over all MiG-29 fighter jets to the United States for use. The U.S. kicked the ball back: the U.S. Department of Defense said it did not support Poland in sending fighter jets to the Ukrainian Air Force. What about Ukraine? Glancing expectantly at Poland, then to the United States, and back to Poland, like a monkey that had been manipulated by the United States and harassed Russia.
The monkeys consider themselves to be fine, and this week continue to want to lead nato, the United States rhythm, and use force against Russia. And is committed to pulling Belarus into the quagmire of war in order to successfully bring NATO and the United States to war:
On March 17, Belarusian President Alexander Lukashenko said Minsk would respond if Ukraine continued to escalate its provocations against Belarus.
On March 16, local time, Ukrainian President Zelenskiy delivered a speech to the US Congress by video, asking the United States to set up a no-fly zone in Ukraine. He said that this was "humanitarian assistance", and if the United States thought that the cost was too high, he could also retreat to the second place and ask the United States to provide fighters and defense system support for Ukraine. He also called on the United States to increase sanctions against Russia, saying that American companies should cut ties with Russia.
On the same day, NATO Secretary-General Stoltenberg said after a special meeting of defense ministers of NATO member states on the same day that although Ukrainian President Zelenskiy reiterated his call for the establishment of a no-fly zone in Ukraine when he addressed U.S. congressmen earlier that day, NATO still decided not to take such actions and would not send ground troops across the Polish-Ukrainian border in the name of peacekeeping forces. NATO's main task at present remains to prevent the escalation and expansion of the Russian-Ukrainian conflict.
On March 17, the United States and NATO reiterated to the annoying monkey:
U.S. Defense Secretary Austin reiterated again on March 17 local time that the United States will not set up a no-fly zone in Ukraine, because once a no-fly zone is established in Ukraine, it means direct conflict with Russia. Austin said U.S. President Joe Biden has made it clear that he will not send U.S. troops to fight in Ukraine, but that the U.S. will do everything in its power to support Ukraine.
When German Chancellor Scholz met with nato secretary general Stoltenberg in Berlin on the 17th, time. At a joint press conference ahead of the talks, both Scholz and Stoltenberg re-emphasized that NATO would not intervene militarily in the Ukraine conflict.
In addition, Turkish Foreign Minister Cavusoglu said at the Antalya Diplomatic Forum that sanctions against Russia will not solve the problem. Cavushoglu said Turkey's position was clear from the start. Western countries want Turkey to take some measures that turkey has not taken, but turkey has explained clearly. Cavushoglu said on the 2nd of this month that Turkey has no intention of joining the ranks of international sanctions against Russia in response to the Russian-Ukrainian conflict.
To what extent can Biden's strategy of turning over European allies and bringing the world over the world be recognized by American public opinion? According to a poll jointly released by ABC and Ipsos on the 13th local time:
70% of Americans disapprove of US President Joe Biden's approach to INFLATION in the United States.
Polls show that 70 percent of Americans disapprove of Biden's approach to gasoline prices.
However, 77 percent of Americans support the Biden administration's proposal to ban the import of Russian oil, even though that means Americans have to pay more for gasoline.
At the same time, 58 percent of Americans oppose Biden's work on the U.S. economic recovery.
The poll also noted that 48 percent of Americans support Biden's approach to Ukraine, and 51 percent oppose it.
On the 14th local time, two Indian officials who did not want to be named revealed that the Indian government is considering buying more oil and other products from Russia at preferential prices to cope with a sharp rise in oil market prices. At the same time, India and Russia are preparing to directly use the Mechanism of Settlement between the Indian Rupee and the Russian Ruble, and The European and American sanctions will not prevent India from importing Russian oil.
Subsequently, the United States issued a warning to India, and on March 15, local time, White House press secretary Psaki responded to India's desire to buy Russian oil. She said at a press conference that although India's move does not violate the US sanctions against Russia, she hopes that India will think clearly about its position in history.
Under the premise of not endangering the United States, directing or threatening other countries to "stand" is called hegemony! Sanctions for disobedience are called bullying!
3 The impact of the Geopolitical Crisis in Russia and Ukraine
On the 13th local time, the Central Bank of France, the Banco de France, predicted that due to the impact of the Russian-Ukrainian conflict, the inflation rate in France will be higher in 2022, between 3.7% and 4.4%. The high inflation is mainly due to the rise in energy and food prices. At the same time, the Bank of France lowered its GDP forecast, which is expected to grow by 2.8% to 3.4% in 2022.
On March 15, the International Monetary Fund published an article saying that in addition to suffering and humanitarian crisis, the Russian-Ukrainian conflict will also cause slower growth and inflation in the world economy. Among them, the impact will be reflected in three aspects:
First, the rise in the prices of commodities such as food and energy further causes inflation;
Second, neighboring economies in war zones will face a historic surge in trade, supply chains, remittance disruptions, and refugee flows;
Third, lower business confidence and increased investor uncertainty will weigh on asset prices, tighten financial conditions, and potentially spur capital outflows from emerging markets.
In the long run, the Russian-Ukrainian conflict could fundamentally alter the global economic and geopolitical order, with heightened geopolitical tensions further increasing the risk of economic fragmentation, particularly in trade and technology.
Unprecedented sanctions against Russia would hurt Financial Intermediation and Trade in Europe and would inevitably lead to a "deep recession."
The International Energy Agency (IEA) noted in its monthly report that Russia's oil production could fall by about a quarter next month, triggering the biggest supply shock in decades for the oil market. In its report, the IEA warned that the impact of Russia's reduced oil on global energy markets should not be underestimated, and while it is too early to judge how things are going, the crisis could bring lasting changes to energy markets.
In addition, according to the International Transfiguration Agency reported on the 12th, Kobrnitez, director of the Department of European Cooperation of the Russian Foreign Ministry, said that if necessary, Russia is ready to confront the EU in the field of energy. Russia has always maintained a reliable energy supply to ensure world energy security, and the Russian side attaches great importance to this. But if necessary, Russia is also ready to fight a tough confrontation in the energy sector. Kobrenez stressed that if it did get to this point, the EU would not benefit from it.
With the high degree of global information transparency, these decades of suppression and sanctions by the United States will constitute a credit shock to the United States, the dollar, and U.S. debt. India increased rmb reserves and RMB trade settlement; on March 16, Saudi Arabia also said that it would consider using RMB settlement for oil transactions with China; as for Russia, it goes without saying that it is more inevitable to increase RMB reserves and trade.
4 Data and monetary policy
The U.S. Final Demand Producer Price Index rose 10 percent year-over-year in February, the 21st consecutive month-on-month rally, showing commodity prices posting their biggest monthly increase since 2009, with two-thirds of the gains coming from energy. This is the latest sign of high inflation in the United States, and prices are bound to accelerate further after the escalation of the situation in Russia and Ukraine has pushed some raw material prices to new highs.
On March 16, the Fed announced a 25 basis point rate hike and hinted that it would take a more aggressive interest rate path to block inflation. Follow the fed's rate hike rhythm:
The Brazilian central bank raised interest rates by 100 basis points to 11.75%, the ninth consecutive rate hike since March 2020. Brazil's benchmark interest rate has now reached its highest level in five years, second only to its highest level of 12.25% per year in April 2017.
The Saudi Central Bank raised the reverse repo rate to 1.25% (previously 1.00%) and the Reserve Rate (RRR) by 25 basis points to 0.75%.
Kuwait's central bank raised the discount rate by 25 basis points to 1.75%.
Bahrain's central bank raised the key policy rate by 25 basis points to 1.25 percent and the overnight deposit rate by 25 basis points to 1.00 percent.
The UAE central bank raised the rate on overnight deposits by 25 basis points.
The Financial Times commented that as the world's largest economy and major issuer of reserve currency, the United States accounts for nearly a quarter of the world's gross domestic product, and 60% to 80% of international trade is settled in US dollars. Under the dominance of the US dollar, the United States has also overdrawn consumption through currency depreciation, eating grain, and transmitting financial risks to the world. At present, the Fed has officially entered the tightening cycle, and the negative spillover effect of its monetary policy is worth paying attention to.
In response to the Fed's pushing open the window of the rate hike cycle, Scott Ladner, chief investment officer at HorizonInvestments, said: "This looks like the Fed is planning to trigger a recession in order to eliminate the inflation problem, just as it was a year ago when inflation was temporary."
In a statement following the rate decision, the Fed said the Russian-Ukrainian conflict and the ongoing pandemic had created enormous uncertainty for the U.S. economy, but said it would be appropriate to "keep raising interest rates" to curb the highest inflation in the U.S. in 40 years. Current Fed concerns about high inflation and the situation in Ukraine overshadow the risk of a COVID-19 pandemic.
The Fed unexpectedly expects a 25 basis point hike at each of the remaining six policy meetings this year, which would put the target range for the federal funds rate at 1.75%-2.00% by the end of 2022. By the end of next year, the policy rate is expected to reach 2.80 percent, higher than the 2.40 percent that policymakers now believe will slow economic growth. I am not surprised that interest rates have been raised at every meeting during the year, and I hope to be prepared for the shock of the economy and finance in 2023.
5 As global inflation intensifies, gold hedging will not be absent
Mikhail Spprogis, Metals Strategist at Goldman Sachs, said on Sunday: "The recent across-the-board rally in commodity prices and rising global geopolitical uncertainty mean that our optimistic expectations for gold investment and central bank demand are now becoming fundamental assumptions. We now expect gold demand to grow strongly in 2022. The last time we saw all the major demand drivers accelerate simultaneously was in 2010-2011, when gold rose by almost 70%. Spprogis and colleagues raised their three-, six- and twelve-month estimates for gold prices to $2,300, $2,500 and $2,500 an ounce on Monday, up from their previous estimates of $1,950, $2,050 and $2,150.
While we disagree with Goldman Sachs' logic about gold's medium-term strengthening, we do not negate its derivations. After observing and thinking about the decades of gold price history and the global inflation trend represented by the United States, the author believes that gold has not yet made a reasonable response to the hyperinflation cycle that begins in 2021 to match its financial attributes. For example, the monthly K line of the international spot gold price in 50 years, as well as the corresponding Sino-US CPI and PPI price indexes, the actual gold price chart after the international nominal gold price excludes the impact of the US CPI:
First, comparing the international nominal gold price and the actual gold price (adjusting the 2011 high consistent, $1920.80) after excluding the impact of the price change of the US CPI, the actual gold price and the nominal gold price fluctuations tend to converge, indicating that gold has the financial attributes to resist inflation.
The latest data shows that the US Producer Price Index (PPI) is 10% annualized and the US Consumer Price Index (CPI) is 7.9% per annum. The U.S. CPI continues to hit a 40-year high, but there is still plenty of room to play ahead of the 11.2 percent top in 1974 and the 14.6 percent price top in 1980, and the current U.S. government is so committed to disrupting the world and stimulating inflation. Coupled with the liquidity release and precipitation that has never been seen in the history of the United States, whether it is absolute or relative, it is foreseeable that the inflation trend in the United States, regardless of time or space, has "great achievements"!
Looking at the US PPI price index, which is far below the 15.4% in 2008, then you can highly praise the "effectiveness" of the current US government and the Federal Reserve in stimulating inflation!
There is no doubt that with the start of the war between Russia and Ukraine in late February, the sharp rise in commodity prices, the US March inflation data undoubtedly continues to be significantly "bullish"!
Looking at China's CPI and PPI price index, China's CPI in February was only 0.9% annualized, which is an enviable low, thanks to China's effective and efficient regulatory system.
China's PPI was 8.8% p.m. in February, and although it has fallen against European and American countries for several consecutive months, the absolute value is still high. There is no way to do this, it represents the level of peripheral inflation. China has not allowed the PPI price to spread and infiltrate to the CPI end, which is the advantage of our regulatory system.
In this way, when Europe, the United States, and even the world enter the interest rate hike cycle, we have counter-cyclical interest rate cut space, which can hedge the impact of peripheral interest rate increases on the domestic economy and finance. China's economy, especially the financial cycle, has been derailed from the United States for several years, which can largely avoid the risk of being exported by the United States after inflation, and then through interest rate hikes, it will collapse and drag down the economic and financial shearing of other countries. Isn't it? At least this round of inflation exported by the United States to the world, we do not accept, depending on the price trend of China's CPI.
However, to resist the continuous impact of external inflation, we will continue to test our regulatory wisdom: how to adjust the balance of operations and profits between special high-profit industries and industries affected by raw material impact through tax leverage in stages, and maintain the normal operation of the entire industrial chain.
Returning to the topic of inflation and gold prices, the 52-year inflation cycle in the chart is as follows:
The period 1970-1980 was a large cycle of rising prices, consisting mainly of two cycles of inflation. Corresponding to the two rounds of gold bull market, the gold price rose from $35 to $195, pulled back to $102.5, and then rose to $850.
From 1981 to 1999, it was a large cycle of price decline for more than 20 years, or a cycle of low prices. Corresponding to the big bear market in gold, the price of gold fell from $850 to around $250.
1999-2011 was a large upward cycle of prices, corresponding to the rise of the gold price from $250 to $1920.80.
2012-2020 is the price decline cycle, but if the PPI is used as a reference, the beginning of 2016 corresponds to inflation bottoming, gold prices bottoming, and then the inflation trend corresponding to the gold price operating trend.
But the sharp rise in gold prices in 2019/2020 is not due to inflation, but to the Sino-US version of the "geopolitical crisis".
Therefore, although the global inflation situation in 2021 is grim, gold prices have not risen much because the safe haven increase based on the US-China trade dispute in 2019/2020 has been too large.
Combined with the economic cycle, March 2020 can be regarded as the starting point of a new global economic cycle, so it is not unreasonable for us to define it as the starting point of the inflation cycle. The previous two large cycles of inflation in the middle of 52 years lasted for about a decade overall. Looking at the intensity of global liquidity injection led by the United States in the past two years, it has not been seen in decades. Coupled with the geopolitical crisis and war that have a great impact on global raw material commodities, how can global systemic inflation turn around in just one or two years?!
If inflation continues for another few years, investors can certainly expect a bull market in gold, referring to the relationship between gold prices and inflation in 1970-1980 and 1999-2011.
In 2021, the actual gold price and the inflation index fluctuated in reverse, which is a manifestation of gold's failure to respond reasonably to inflation risk aversion.
6 Will the $6 rate hike cycle hit gold?
From the comprehensive observation of the gold price, dollar interest rate and price index cycle for more than 30 years, the suppression of prices by the dollar interest rate increase cycle will not have an immediate effect. Even during most of the rate hike cycle, interest rates and prices will rise together, and the impact on gold prices will naturally be inconclusive. For example, more than 30 years of international spot gold prices, the US federal funds benchmark interest rate (US dollar interest rate), the US CPI, the US medium-term liquidity index chart:
In the chart, there are a total of six rate reduction cycles and five interest rate increase cycles, and the sixth rate increase cycle is currently ushering in.
a October 1986 to April 1989
Looking at the period of interest rate increases from October 1986 to April 1989, the dollar interest rate rose from 5.85% to 9.85%.
The rate hike is slow first and then fast. The first is slow because the price at the beginning of the interest rate increase cycle is not high, and it should be a benign interest rate increase to prevent the economy from overheating. However, in the first half of the intermittent interest rate hike cycle, prices rose rapidly, and gold prices corresponding to a sharp rise.
Entering the second half of the interest rate increase cycle, prices are high, and the purpose of interest rate increase is to significantly suppress inflation. However, interest rate hikes have not curbed prices in a timely and effective manner, and prices continue to fluctuate upwards. Gold prices, however, entered a downward cycle amid an accelerated interest rate hike in the US dollar.
It should be noted that the interest rate increase cycle has entered the second half, although there is a lot of room for interest rate increases, but the US medium-term liquidity index has no longer reached a new low, which is an important reason for inflation and interest rates to rise at the same time, and the actual liquidity has bottomed. Therefore, for the medium-term inflation trend, in addition to interest rate factors, the actual liquidity trend has a greater impact on inflation. These factors, in addition to the monetary level, there are also fiscal levels, economic levels, and exchange rate levels.
B February 1994 to January 1995
During the february 1994-January 1995 dollar rate hike cycle, the dollar interest rate rose from 3.00% to 6%. Looking at the CPI price index, which is not high, it can be concluded that this is a normal liquidity recovery process to prevent economic overheating.
This rate hike cycle closely corresponds to the mid-term liquidity decline in the United States, further indicating that the nature of the rate hike is benign.
Looking at the gold price and price index, the overall horizontal shock, the change is not much.
C July 1999 to May 2000
During the U.S. dollar rate hike cycle from July 1999 to May 2000, the dollar interest rate rose from 4.75% to 6.5%.
U.S. medium-term liquidity bottomed out ahead of schedule;
The U.S. CPI rose almost in tandem with interest rates, and prices rose even more.
Gold prices bottomed out after a 30-year bear market. The rate hike cycle did not have a significant inhibitory effect on gold prices.
D July 2004 to June 2006
During the period from July 2004 to June 2006, the dollar rate rose sharply from 1.00% to 5.25%.
This is the cycle of the dollar interest rate increase cycle in the chart, the largest interest rate increase cycle,
In this sharp rate hike cycle, the price president oscillated upwards, and the inflation trend was obvious. why? Looking at the US medium-term liquidity index, the huge amount of interest rate increase space does not correspond to the decline in the real liquidity of the United States in the medium term, and the entire liquidity is flattening.
During this period, gold prices rose sharply due to the geopolitical crisis superimposed on the us and Iran nuclear issues. Rose from around $410 to $730.
Of course, the macro bull market foundation laid by gold in the previous three years is also very important. The author has analyzed the technical significance of the "ten-year bowl" from 1994 to 2005 many times.
E December 2015 to December 2018
During the december 2015-December 2018 dollar rate hike cycle, the dollar interest rate increased from 0.25% to 2.5%.
As can be seen from the US CPI price index, this intermittent interest rate hike process is a benign de-liquidity process, corresponding to the shock decline of US medium-term liquidity. The rhythm of interest rate increase and the rhythm of liquidity decline generally correspond.
The dollar interest rate hike and liquidity fell in general, and there was no suppression of inflation, which shows that the US economy was generally running well during the period.
F March 16, 2022 to?
The new cycle of dollar rate hikes that began on March 16, 2022, is very different from the previous cycles of rate hikes.
The difference is that the price index corresponding to the rate increase point is very high, at a four-decade high. Before the interest rate hike, the US medium-term liquidity has fallen to a large extent, that is, the author's so-called Fed has achieved remarkable results in raising interest rates with its mouth.
After the start of this interest rate hike cycle, even if the DOLLAR interest rate has a lot of room for improvement, even if the Fed raises interest rates at every interest rate meeting, how much room can the US medium-term liquidity have?! If there is not much room for downside, it means that the hope of curbing the price rally this year can only be a wishful thinking fantasy between the United States and the Federal Reserve.
As the author said in an earlier article analysis, Biden's $2 trillion infrastructure plan should be on the road! Tight money and loose finances mean that the overall liquidity space is limited and will also stifle the effect of inflation suppression. In addition, there are obvious liquidity crunch hedges, the biggest exchange rate market manipulators, which dominate the trend depreciation of the US dollar!
Gold, will not be affected by the dollar interest rate increase and the long-term bull market logic!