FXTM Yang Aozheng: Gold prices are still expected to continue to hit record highs in the future

Reporter Tan Zhijuan reports from Beijing

Since 2024, the price of gold has continued to hit record highs, which has attracted great attention from investors and consumers, and has also become one of the hot topics of discussion.

The reporter noted that since the end of February, the international gold price has soared, and spot gold has broken through the $2,400 / ounce mark, refreshing a record high. The rise in spot gold prices has driven futures prices higher, and statistics show that COMEX gold futures prices have risen by more than 15% since March.

Why has gold continued to hit new highs this year? What is the trend of gold in the future? How does the market's expectation of the Fed's interest rate cut this year affect the price trend of gold?

On such issues, the reporter of "China Business News" recently interviewed Yang Aozheng, chief Chinese market analyst of FXTM in Beijing.

China Business News: What do you think of the phenomenon that international gold prices have been hitting new highs since the beginning of this year?

Yang Aozheng: There are two reasons why gold prices continue to rise this year:

First, there is no sign of further slowdown in international inflation, and the sharp rise in commodities, including oil prices, has increased the possibility of a resurgence of inflation. With the Federal Reserve and the world's major central banks beginning or expecting to enter into the expectation of interest rate cuts, gold has become the only anti-inflation tool, and anti-inflation funds have continued to chase gold prices, resulting in gold prices continuing to rise.

Second, the geopolitical situation, including the Middle East, Russia-Ukraine relations are still in a very uncertain situation, and safe-haven funds are also inclined to enter gold.

China Business News: At present, gold has shown signs of decline: on April 19, spot gold showed a short-term dive, once falling below $2,390 per ounce. What do you think about the decline in gold?

Yang Aozheng: If the Fed's interest rate cut continues to be delayed, and the expectation of monetary policy from tightening to easing remains unchanged, but inflation still exists, anti-inflation funds will continue to have incentives to chase gold. Therefore, the recent correction in gold prices may only be a technical pullback, or a short-term pullback in which the geopolitical situation has eased, and it is difficult to say that the trend will turn for the time being.

Only when the market consensus and the Fed once again shift to raising interest rates as the goal and stance to combat inflation can anti-inflation funds be expected to shift from gold to the dollar, and gold prices can be expected to really fall further.

China Business News: Looking ahead, what do you expect gold to look forward to, and what factors will affect it?

Yang Aozheng: Under the condition that the fundamentals remain unchanged, it is expected that gold prices are still expected to continue to hit record highs in the future. After breaking through the current all-time high of $2,430 per ounce, gold is expected to further challenge the $2,500 per ounce mark, and on this basis, the possibility of higher prices is not ruled out.

Gold prices are likely to be largely affected by the Fed and geopolitical situations this year. If there is a significant shift in Fed policy, such as not cutting interest rates this year, or if the global geopolitical situation improves significantly, this could lead to a sharp correction in gold prices, which are currently rising significantly more aggressively.

China Business News: Based on the market's expectation of the Fed's interest rate cut, how do you view the impact of the Fed's interest rate cut this year on the trend of gold?

Yang Aozheng: Generally speaking, gold and the US dollar have a negative correlation, but this is not inevitable.

With anti-inflation and risk-off factors dominating the headlines, the possibility of the US dollar and gold prices rising together has always existed, such as in 2020 and 2022, when gold prices hit record highs and were close to new highs.

As a result, the recent postponement of Fed rate cut expectations has boosted the dollar and Treasury yields, while gold prices have rallied more sharply and continued to hit record highs in light of inflation spillovers and mismatched monetary policy.

It is worth noting that before the 2022 interest rate hike, there was a wave of gold price increases. When the rate hike was officially announced, gold prices had been falling during the 2022 rate hike. The timing of the rate cut is still uncertain, but gold prices are already buying in the expectation of a rate cut. Under the "buy expectations, sell facts", when the news of interest rate cuts is officially established, gold prices are also likely to fall significantly. However, at present, the market expects an interest rate cut in September, which means that before that, gold prices are still likely to continue to hit new highs.

China Business News: The Fed has been postponing interest rate cuts this year, when do you expect the Fed to actually cut interest rates?

Yang Aozheng: It is expected that the Fed may not announce interest rate cuts until inflation has fallen further. In the short term, in the absence of a significant pullback in inflation data, interest rate cuts are not expected to begin until the second half of the year at the earliest.

Recently, the core inflation rate in the United States exceeded expectations for three consecutive months, indicating that inflation is still showing signs of resurgence, coupled with the geopolitical situation in the Middle East, leading to the possibility of further rises in oil prices and commodities, and the Fed's interest rate cut expectations have been continuously postponed, and even some Fed officials have recently said that they do not rule out raising interest rates in the next step.

When the Fed officially starts cutting interest rates, it is expected that the dollar will retreat by then. At the same time, it also depends on the Fed's expectations and pace of interest rate cuts in the future. At present, other major central banks such as the European Central Bank are likely to start cutting interest rates before the Fed, and the spread between US interest rates and interest rates of other major central banks is likely to widen further, which is bearish for non-US currencies.

It is expected that the EU, Britain and Australia central banks are likely to cut interest rates before the Fed, thereby stimulating economic growth and adjusting to the inflation that has already fallen. If the Fed repeatedly delays the timing of interest rate cuts, or US inflation rises again, or even global inflation returns, central banks may shorten their interest rate cut cycles and even need to raise interest rates again, which will lead to a significant shift in the joy of the stock market's expectation of easing.

China Business News: Once the Fed cuts interest rates, what will be the impact on China?

Yang Aozheng: For the Chinese market, the PBOC's prudent and loose monetary policy may keep the interest rate differential between China and the United States at its current level for a while, and the RMB exchange rate can maintain the current range of 7-7.35, with relative pressure lower than other Asia-Pacific currencies and major non-US currencies.

When the Fed's interest rate cut is officially implemented, the interest rate differential between China and the United States is expected to narrow further, and the RMB is expected to return to the level around 7.

(Editor: Meng Qingwei Review: Hao Cheng Proofreader: Yan Jingning)