At 2:00 a.m. Beijing time on November 4, the Federal Reserve announced the November interest rate decision, and taper (reducing the bond purchase plan) arrived as scheduled, becoming an important event affecting the direction of financial markets. From the perspective of the domestic market, the Fed taper landed as scheduled, what impact does it have on the gold price trend of the domestic gold market?
Against the backdrop of a slowdown in economic growth in the third quarter, gold was once again favored as an effective risk hedging tool for investors. Data released by the China Gold Association (hereinafter referred to as the "China Gold Association") recently shows that in the third quarter of 2021, domestic gold production and consumption further differentiated, and under the support of multiple factors, gold demand as a whole showed an upward trend.
The World Gold Council said that gold jewellery ushered in the peak consumption season, cautiously optimistic about domestic gold consumption in the fourth quarter; from the investment side, China's economy will resume stable growth after the short-term shock subsides and the implementation of corresponding policies, but for now, domestic and foreign uncertainties have increased, gold anti-risk attributes continue to appear, and it is expected that domestic gold investment demand will remain increasing for a period of time.
For the future trend of gold prices, analysts generally believe that gold prices will continue to oscillate in the short term; in the medium and long term, the Fed's debt reduction boots landed, gold prices are expected to be exhausted, and gold prices are still supported under the influence of factors such as the difficulty of changing the trend of ultra-low interest rates in the world, geopolitics, the expansion of institutional funds and the increase in the demand for hedging equity risks, and the increase in the scale of central bank gold purchases.
The divergence of gold production and consumption has intensified
Since the third quarter, domestic and foreign risks and challenges have increased: the spread of the global epidemic, the recovery momentum of the world economy has slowed down, and international commodity prices have run at a high level; some parts of the country have been affected by the multiple impacts of the epidemic and flood conditions; at the same time, under the background of the domestic energy consumption dual control policy, the pressure of economic transformation and adjustment has emerged.
In the complex economic context, the changes in production capacity in the domestic gold market have attracted attention. According to the latest data released by the China Financial Association, in the first three quarters of 2021, the country produced a total of 315.48 tons of gold, down 6.53% year-on-year. Among them, the domestic raw material gold production was 236.75 tons, a decrease of 26.18 tons compared with the same period in 2020, down 9.96% year-on-year; another imported raw material gold production was 78.73 tons, up 5.56% year-on-year.
As early as the second quarter of last year, with the steady progress of the resumption of work and production, domestic gold production has fully returned to normal, in 2021, non-coal mines in Shandong Province began to stop production for safety inspections in February, comprehensively check safety hazards, implement rectification measures, temporarily affected the output of the first gold-producing province - Shandong, which is also the main reason for the decline in domestic gold production in the first three quarters. However, at the same time, domestic large gold enterprises (groups) give full play to the advantages of overseas high-quality mine resources, and strive to increase production, in the first three quarters, Zijin Mining, Shandong Gold and other enterprises overseas mines to achieve mineral gold output of 26.90 tons, up 30.64% year-on-year.
In contrast to the cold production situation, domestic gold consumption demand continues to rise. According to data from the China Financial Association, in the first three quarters of 2021, the actual consumption of gold in the country was 813.59 tons, an increase of 48.44% compared with the same period in 2020. Among them, gold jewelry was 529.06 tons, an increase of 54.21% year-on-year. In the third quarter alone, driven by factors such as pro-consumption policies and the consumption of Tanabata and Mid-Autumn Festival, gold jewelry consumption recovered rapidly, and domestic gold jewelry demand reached 180.5 tons, an increase of 33.5% year-on-year.
Wang Lixin, CEO of the World Gold Council in China, said that China's jewellery demand has risen significantly year-on-year, basically returning to pre-epidemic levels. The emergence of high year-on-year growth is due to the low base of the same period last year, on the other hand, the decline in gold prices and the popularity of more new categories have also contributed to the growth.
This argument can be seen in the three quarterly reports released by listed gold companies. Taking Caibai shares, which just officially landed on the A-share market on September 9, as an example, the company's third quarterly report shows that the sales volume of Caibai shares has increased compared with the same period last year, but in the context of the gold price correction, the net profit in the third quarter fell by 33.45% year-on-year.
Bar and coin sales also showed a strong trend. According to the data, in the first three quarters, gold bars and coin sales were 214.13 tons, an increase of 50.25% year-on-year, and a substantial increase of 29.11% over the same period in 2019.
In Wang Lixin's view, in addition to the fluctuations in domestic economic growth caused by investors' hedging and hedging needs, with the gradual withdrawal of paper gold trading and some gold contract personal trading agency business of the Shanghai Gold Exchange, the focus of gold business sales of domestic commercial banks has shifted, and investors have also taken advantage of the gold price adjustment opportunity to buy at a low price.
The value of gold investment continues to be highlighted
Since Q3, lower gold prices and a weak equity market have enhanced the attractiveness of gold ETFs to Chinese investors, resulting in an inflow of 3.82t of Chinese gold ETF positions in Q3. According to data from the China Financial Association, in the first three quarters, domestic gold ETFs increased their holdings by 11.04 tons, and as of the end of September, domestic gold ETFs held about 71.95 tons.
In fact, not only ETF, with the rapid expansion of China's public fund (FOF) market, gold with its own "commodity + currency" dual attributes, in different periods have maintained the stability of demand, is being more widely accepted by China's public FOF, becoming FOF strategic allocation assets.
According to World Gold Council data, by the end of 2020, a total of 27 FOFs in the Chinese market have been allocated with gold ETFs, accounting for 20% of the total number of public FOF products that have announced their positions. "Gold has a strategic role in regulating the exposure and sensitivity of portfolios to macro factors." In the view of a domestic FOF fund manager, diversifying portfolio risks, resisting inflation and contributing excess returns, hedging macro risks, etc. are the main reasons for his allocation of gold.
Zhang Ziyan, fund manager of the multi-asset investment department of Wells Fargo Fund, said that for the asset allocation of fof funds, it is very important to increase the attention to inflation factors, and gold is an important tool to adjust the sensitivity of portfolios to inflation factors. Considering several factors of gold pricing, the allocation value of gold will also be reflected in the environment of low real interest rates, rising inflation, and rising monetary credit risk caused by liquidity flooding. In the future, the strategic significance of gold in China's public FOF portfolio will be further consolidated.
"Looking ahead, slowing economic growth and associated uncertainties could play a role in supporting China's gold investment needs." Jia Shuchang, Research Manager for China at the World Gold Council, said that under the premise of power curtailment and the spread of the epidemic in many places, the manufacturing purchasing managers' index fell to 49.6 in September, which is the first time since March 2020 to fall below 50, and the growth rate of GDP has also slowed; the ppi continues to soar, while the recent retail sales growth year-on-year decline has weakened. In the context of the supply side being restricted, the demand side facing challenges and rising inflationary pressures, domestic "stagflation-like" pressures are accumulating, and the value of gold investment continues to appear.
Short-term gold prices continue to fluctuate
In the first three quarters of 2021, with the overall slowdown of the global epidemic and the recovery of the global economy, the gold price shock pulled back. According to the data, as of the end of September, the London spot gold fixed price was 1742.80 US dollars / ounce, down 10.31% from the beginning of the year; the Shanghai Gold Exchange au9999 gold closed at 362.14 yuan / g at the end of September, down 8.89% from the beginning of the year.
At the same time, the domestic gold period spot trading volume continued to decline. According to the data of the China Financial Association, in the first three quarters, the cumulative trading volume of all gold varieties on the Shanghai Gold Exchange was 26,300 tons bilaterally, down 46.86% year-on-year, and the turnover fell by 47.73% year-on-year; the cumulative trading volume of all gold varieties on the Shanghai Futures Exchange was 72,600 tons bilaterally, down 12.22% year-on-year, and the turnover fell by 18.56% year-on-year.
At 2:00 a.m. Beijing time on November 4, the Federal Reserve announced the November Monetary Policy Committee decision, in the case of maintaining the target range of the federal funds rate between zero and 0.25%, if the market expects to officially start the taper process, it will reduce the monthly asset purchase scale of $15 billion, and adjust the speed of bond purchases as appropriate.
Judging from the Fed's decision statement, its statement of economy and policy is basically in line with expectations. After the resolution was announced, spot gold prices rushed higher and fell back in the short term. In the short term, the Fed's monetary policy turned, analysts said that gold prices are expected to remain in a shock phase, strong economic data in the United States and the stock market hit gold bulls for consecutive days, but the weak dollar continues to support gold prices.
Wang Baoqing, an analyst at Huachuang Securities, said that the liquidity inflection point has not yet arrived, inflation is expected to be at a high level, and in the context of "stagflation", gold prices will remain high.
In the long run, people in the industry generally believe that the trend of gold prices is still supported. Su Xin, director of asset allocation at the Minsheng Canada Bank Fund, said that reasons such as the uneven recovery of the economy will make the real interest rates of major developed countries stay in the negative range for a long time, while factors such as higher inflation and weaker DOLLAR indexes are also good for gold prices.
Wang Baoqing said that the dollar index is expected to remain weak, at the same time, energy prices continue to rise to drive inflation expectations upwards, real interest rates are running low to support gold prices, and gold ETF positions also confirm the value of gold asset allocation from the side.
This article originated from the Financial Times