2024-04-24 00:01:00
International gold prices saw their biggest one-day drop since February last year
The international gold price, which rose for five consecutive weeks and reached new highs, finally marked the beginning of a correction.
On April 22, international gold prices plunged almost 3%, falling below $2,350, the biggest one-day drop since February last year. On April 23, spot gold continued its decline. At press time, it had fallen below the entire US$2,300 per ounce mark. It fell more than 3.3% in two trading days, triggering doubts in the market whether gold’s rally would succeed. is stalled and a larger correction is underway.
A reporter from the 21st Century Business Herald learned in an interview that there are three reasons for the current decline in gold prices: first, the easing of geopolitical tensions has led to a cooling of risk aversion; not enough to support the Federal Reserve’s interest rate cut; third, in order to make profits at the financial level and exit the market, many domestic and foreign stock exchanges have adopted methods such as increasing margins to curb overheated speculation in the market.
Liang Xuan, a researcher at the financial market department of China Construction Bank, told a reporter from the 21st Century Business Herald that a correction in gold is inevitable after continuously breaking new all-time highs, but in the medium and In the long term, the basis for gold’s rise is still solid. On the one hand, the Federal Reserve’s expectations for a cut in interest rates during the year could reverse again at any time, bringing new long opportunities for precious metals. On the other hand, the international situation is worsened and this year is a “global crisis”; “election year”, and various uncertain factors may also affect the gold trend in stages. In addition, the purchase demand for gold from global central banks remains strong, becoming an important factor in the rise of gold price.
However, many players in the futures industry reminded that as the May 1 holiday approaches and facing a complex external environment, the volatility of the gold market may increase again and it is recommended to reduce positions before the holidays. The 21st Century Business Herald reporter also noticed that in the past two weeks, risk control measures in the Shanghai gold futures market have also been strengthened. In addition to imposing trading limits on varieties of gold futures and increasing margin ratios, the Shanghai Futures Exchange also released a report. opinion on market risk control. The work notice reminds member units and investors to prevent risks, invest rationally, and jointly maintain the smooth operation of the market.
Expectations of Fed Rate Cut Affect Gold Prices
Changes in expectations of an interest rate cut by the Federal Reserve are a major factor in the movement of international gold prices. The minutes of the Federal Reserve’s March monetary policy meeting released on April 10 local time showed that the rate of decline in inflation in the United States was still insufficient to support a cut in interest rates . The Fed will not cut interest rates until it is confident that inflation will gradually return to its target.
He Ning, chief macroeconomic analyst at Kaiyuan Securities, bluntly said that judging from current data, the Fed’s first interest rate cut may be delayed until the fourth quarter of 2024, and it may even not reducing interest rates throughout 2024.
It is worth mentioning that before the two consecutive days of correction, international gold prices had risen for five consecutive weeks, constantly setting new all-time highs. Liang Xuan told the 21st Century Business Herald reporter that there were two main factors behind this rise in gold: First, the market initially expected the Federal Reserve to start cutting rates interest rates in March and cut interest rates by 150 BP throughout the year, but then started cutting interest rates again in June and cutting interest rates throughout the year. This year, the downward revision of the probability of falling interest rates created the conditions for gold to open an ascending channel. Second, geopolitical uncertainty supports the safe. -safe haven attribute of gold, and the bottom of the gold price increases accordingly.
Under the influence of a higher than expected CPI in March, expectations of a rate cut by the Federal Reserve in June have eased and the geopolitical situation is changing at any time, so an international price adjustment gold is inevitable.
Zhan Dapeng, director of non-ferrous research at Everbright Futures, told reporters that the rapid rise in gold prices has begun to exceed expectations of interest rate cuts by the Federal Reserve and expectations of geopolitical conflicts in the medium term, but in the long term. the upward trend remains unchanged. Additionally, from the CFTC’s gold position perspective, total positions have continued to increase, but institutions’ net long positions have not kept pace. This also shows that the gold price has entered a fishtail market. current position, and long trades have become more crowded. Avoid the risk of recall and liquidation of long positions.
Wang Yanqing, senior analyst at CITIC Futures, believes that this is a normal consolidation stage in the rise of gold prices, and a larger correction may occur during the consolidation. The previous continuous rise in gold prices may have deviated from fundamentals to some extent, and speculative sentiment in the market is strong. Once the rise slows, a run could occur, triggering a rapid correction.
Short-term consolidation does not change the long-term investment value
However, looking forward to the long-term future development of international gold prices, most respondents are still relatively optimistic, because the real interest rates in the United States are easy to fall and difficult to rise. , and a recent interest rate is expected. The rate cut by the Federal Reserve could still be fermented.
Zhang Wen, head of the macro and commodity strategy group at CITIC Futures Research Institute, told a reporter from the 21st Century Business Herald that expectations of a cut in U.S. interest rates at the end of the second quarter would still be likely to increase. , and the probability of a drop in interest rates within a year remains high. Once achieved, this will greatly benefit the recovery of the global economy and the reduction of financial risks. At that point, precious metals could resume trading, liquidity would expand, and prices would stabilize and rise. Additionally, U.S. fiscal risks, geopolitical risks, and global economic growth risks also make precious metals valuable for long-term investments.
The chief economist of CITIC Securities clearly believes that although in the short term the negative attitude of the Fed could have a greater impact on the already rising gold price, in the medium and long term it could be difficult for the Fed to tighten rates further. US monetary policy and real interest rates It is easy but difficult to buy, and given the relatively turbulent geopolitical situation, the pace of gold purchases by global central banks may continue. Gold prices are expected to still have some room to maneuver. growth in the medium and long term.
The “Global Gold Demand Trend Report” released by the World Gold Council shows that gold purchases by global central banks will reach 1,037 tons in 2023, setting the second highest record in history. Among them, the People’s Bank of China ranks at the forefront of the “central bank gold buying wave”. Since November 2022, the Central Bank of China has increased its gold reserves for 17 consecutive months. At the end of March 2024, total gold reserves reached 72.74 million ounces, or 2,074 tonnes. In the 2023 Global Central Bank Survey organized by the World Gold Council, 71% of central bank institutions believed that gold held by global central banks would increase over the next 12 months.
Wang Lixin, CEO of the World Gold Council in China, emphasized in a previous interview with a reporter from the 21st Century Business Herald that the increase in gold reserves of global central banks is not based on the need to make profits short-term investment. but it is a strategic consideration for the continued optimization of the asset allocation structure of foreign exchange reserves. Additionally, gold has generated relatively stable annualized returns over the past few decades, which is also a large part of why central banks are willing to allocate gold assets over the long term.
Yan Xiang, chief economist of Huafu Securities, frankly said that in the medium and long term, the fundamental factors of gold price remain real interest rates, risk aversion and monetary attributes relative to American dollar. It is still very likely that the United States will subsequently enter a cycle of interest rate reductions and that the real interest rate will fall. Additionally, gold purchases by global central banks have not yet ended, which will support interest rates in the medium to long term. gold futures price.
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