- 2024-08-04
- News
Dollar Strength Triggers Gold Price Plunge?
Last week, despite the strong dollar and reduced expectations for US interest rate cuts putting pressure on gold, geopolitical escalation and rising safe-haven sentiment once again activated the safe-haven demand in the gold market, driving gold prices higher. As of the close on November 22, COMEX gold futures rose 1.62% to $2718.2 per ounce, achieving a five-day winning streak with a weekly increase of 5.76%, marking the largest weekly gain since March 2023. What factors influenced this?
Sudden plunge, what happened?
1. Increase in gold ETF holdings
Data shows that last week, the world's largest gold ETF—SPDR Gold Trust (GLD) saw a continuous increase in its holdings, with an increase of 8.04 tons from November 15 to 877.97 tons on November 21.
2. US economic data also supports market sentiment
The November S&P Global Composite PMI rose to 55.3, the highest level since April 2022, indicating that economic growth in the fourth quarter may be accelerating. This context has significantly reduced the safe-haven demand for gold. Previously, some Federal Reserve officials expressed concerns about the stagnation of inflation progress, suggesting caution, while others emphasized the need to continue rate cuts. The cautious expectations of rate cuts by officials have put pressure on gold prices.
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The minutes of the US November FOMC meeting and the Core Personal Consumption Expenditures (PCE) price index to be released this week may become key drivers of gold's trend. If the data indicates an upward risk of inflation, the Federal Reserve may maintain its current policy stance, thereby limiting the rebound space for gold.
In summary, geopolitical conflicts have led to a rapid short-term increase in gold prices, and there is insufficient momentum for further short-term gains. Today's gold price plunge may be due to investors choosing to take profits before the Thanksgiving holiday, while traders have changed their expectations for the Federal Reserve's future interest rate path.
Should you buy or sell gold? Can you get involved?
Whether to buy or sell gold investment products has become a current concern for many investors. In this regard, Wu Zewei, a researcher at the Star Chart Financial Research Institute, said that gold itself has a smaller fluctuation, and the odds of market timing are not enough to compensate for the winning rate. Therefore, it is recommended that investors view gold investment from a long-term allocation perspective, ignore short-term fluctuations, and pay attention to the trend of gold prices over a longer period. Due to a series of long-term logics supporting gold prices, such as US reflation and de-dollarization, gold has a good upward space in the medium and long term. It is suggested to accumulate cheap chips when gold prices are回调, and maintain a higher position level when gold prices rise.
On November 17, Goldman Sachs analysts released a 2025 outlook report, stating that they will continue to be optimistic about gold and have the most confidence in the precious metals sector. Goldman Sachs listed going long on gold as its top commodity trade for 2025. The report said that with the structural support of global central bank gold purchases and the cyclical support of the Federal Reserve's rate cuts, it maintains a year-end target price of $3000 per ounce for gold in 2025.
Goldman Sachs believes that the uncertainty of US policy and the recent consolidation in the gold market provide an attractive entry point. The report said that gold prices have experienced a significant correction, with speculative buying retreating from historical highs, providing a "good opportunity" to buy gold. Goldman Sachs expects that gold prices will rise to $3000 per ounce by next December, driven by the normalization of investor and institutional demand.
Overall, the current gold price is in a tug-of-war between bullish and bearish forces. The short-term trend is significantly affected by market risk sentiment, Federal Reserve policy expectations, and macroeconomic data. If the geopolitical situation in the Middle East further eases, and market expectations for new policies continue to rise, gold prices may face downward pressure. However, against the backdrop of falling US Treasury yields and a pullback in the US dollar, gold is still expected to find support.
How to invest in gold?
— Customers who are optimistic about the future gold price increase
Gold ETF Huaxia (518850) closely tracks the gold price trend, supports T+0 trading, and is suitable for investors with asset allocation needs. Gold can be used as a base for asset allocation, with an external connection (008701/008702), and the current product fee rate is the lowest in the market for similar products.
Rong Ying, the fund manager of Gold ETF Huaxia (518850), believes that due to the short-term escalation of geopolitical conflicts, gold has accumulated a large increase in the short term. As the conflict eases and the pace of the Federal Reserve's rate cuts slows down, there is still a significant risk of large fluctuations in gold prices in the short term. However, under the Federal Reserve's rate cut cycle, the long bull market for gold remains unchanged, and investors may consider buying on dips or making regular investments.
— Investors who are optimistic about the future profit performance of gold industry stocks, aiming to appropriate capture the upward gains in the equity market and pursue higher elasticity
Gold stocks tend to move in the same direction as gold prices but with higher elasticity, potentially amplifying the value of gold during upward price ranges. Since the end of May, gold prices have risen significantly, but the gold stock ETF (159562) has not risen but fallen, creating a significant divergence. If/as the A-share investment sentiment warms up, there is a chance for a catch-up rally/there is a chance for a catch-up, and long-term investors can consider buying on dips, with an external connection (021074/021075).
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