Gold price pullback, several major factors, there will still be variables in the future!

静观Finance

2024-05-06 11:20Published in Hebei Finance and Economics columnist

Gold price pullback, several major factors are exerting force, and there will still be variables in the future!

The price of gold, which did not stay at the peak for a long time, fell "from a high place".

Recently, the pullback of gold prices to the "5-digit prefix" has become a hot topic, causing heated discussions in the market.

Why is this and will there be any changes in the future?

Behind this phenomenon, it is not only the intuitive embodiment of short-term price fluctuations, but also the result of the intertwining of multiple factors such as the global macroeconomic environment, monetary policy trends, geopolitical situation and market psychological expectations.

First of all, the immediate motivation for the correction of gold prices!

The easing of geopolitical tensions in the Middle East became the trigger for a direct correction in gold prices. Recently, the international gold price fell to a nearly one-month low due to this impact, which indicates that the cooling of risk aversion in the market has reduced investors' demand for gold as a safe haven, thereby depressing gold prices.

Second, the unexpected strength of US economic data and the adjustment of Fed policy expectations are important factors. April's non-farm payrolls report showed signs of slowing growth in the U.S. economy, with the market expecting the Fed to cut interest rates soon to stimulate the economy. However, subsequent data showed that the US economy was resilient and inflationary pressures remained, which cooled market expectations for a Fed rate cut. Although Powell's dovish comments once boosted the market's expectations for easing policy, the real game between economic data and policy expectations made the market wait and see the Fed's next move, which in turn affected the demand for gold as a hedging tool.

Third, the linkage effect of global financial markets.

In addition, the linkage of global markets has also had a significant impact on gold prices. The dynamics of the U.S. Treasury market are particularly critical, as the demand for long-term Treasury bonds is tested as the U.S. government plans to bid off huge Treasury bonds, and the market is more sensitive to the interpretation of the U.S. economic outlook and monetary policy. If the market expects more easing from weaker US economic data, the US Treasury yield curve may become steeper, which will directly affect the attractiveness of gold as a non-interest-bearing asset.

Fourth, supply and demand are intertwined with market sentiment.

From the perspective of supply and demand, the correction in gold prices also reflects changes in market demand. The World Gold Council report pointed out that although the recent surge in gold prices has attracted investment demand, physical gold demand has been somewhat suppressed, especially gold jewellery consumption, which is relatively weak in the face of high gold prices. Although the promotional activities during the May Day period in China's gold market boosted sales, they also reflected the dampening effect of high gold prices on end demand. The research reports of some institutions have pointed out that in the short term, high gold prices have suppressed the retail demand for gold jewelry, and in the long run, gold, as an important part of asset allocation, still has allocation value due to its value stability.

However, the price of gold will be uncertain in the future. That is the "de-dollarization" of many countries and the purchase of gold by central banks in some countries.

Finally, it is also worth noting the gold purchases of central banks and the motivations behind them. Against the backdrop of global currency over-issuance and flooding of liquidity, gold's attractiveness as a safe-haven asset and reserve of physical value has risen. Central banks have increased their gold reserves based on risk aversion and the need to store value, and some countries have increased their holdings of gold, indicating a rise in distrust of the dollar's creditworthiness and recognition of the stability of gold's value. Some research reports pointed out that although the demand for gold purchased by central banks fluctuates greatly, in the long run, gold, as a general equivalent of the world, is expected to continue to increase its allocation demand, supporting gold prices to remain high.

Gold, in the end, is still the core asset of safe haven, the first choice. The correction in gold prices is not caused by a single factor, but is the result of the interaction of multiple factors such as the global economy, monetary policy, geopolitics and market sentiment. In the short term, the market's interpretation of U.S. economic data, fluctuations in Fed policy expectations, and the linkage effect of global financial markets have jointly contributed to the correction in gold prices. In the long run, gold's safe-haven properties, anti-inflation ability and special position in the global monetary system still make it still have a high allocation value.

View original image 337K

•