In March 2022, due to the risk aversion caused by the Russian-Ukrainian conflict, the gold price once again reached a high of US$2,078, bringing another crazy situation in the precious metal trading market. However, after that, as the market gradually desensitized the conflict between Russia and Ukraine, and the Federal Reserve began to fight against inflation, interest rate hikes in , gold and silver continued to fall. Since March, gold has closed down for seven consecutive months, and has been close to falling by $500 from its high.
, and silver, also as precious metal , performed even worse while the gold price fell sharply, falling from a high of more than $27 to a low of $17.4, a drop of more than $10.
However, after 7 consecutive months of sharp drops, it seems that the dawn of precious metals has appeared. On the evening of November 4, both gold and silver rebounded violently, with gold soaring more than $50, while silver performed even more brilliantly, rising by more than 7.9%.
So where does this manifestation come from? Can it mean that the bear market for precious metals has passed?
In fact, we should not be too happy too early.
We can review the decline in the past seven months and find that there is a main logic for trading in the precious metals market in the past seven months, that is, the Federal Reserve's interest rate hike. Although the Fed's path to raise interest rates has always been clear, the market has expectations of the toughness and weakness of the Fed's interest rate hike, and the trend of gold and silver is almost exactly consistent with the market's bet on the Fed's path to raise interest rates in the future.
In this process, gold and silver are of course affected by other price factors, but these effects are pale in comparison to the main line of trading of the Federal Reserve's interest rate hikes and tightening. Therefore, under the continuous sharp interest rate hikes of the Federal Reserve, gold and silver are difficult to raise their heads in the face of significant pressure.
However, this situation is close to the past, and recently two things are changing the path of the Fed's interest rate hike.
The first is the inflation situation. Although it seems that the price of commodity still seems to be at a relatively high level, with the focus on energy, these prices have obviously improved significantly compared with the first half of this year. In the face of high interest rates, the US housing market is also declining relatively quickly. Many institutions have given expectations that the CPI turning point is right in front of them.
The second is the growth rate of the US economy. The US economy is obviously in an overheating situation this year, which has driven the CPI on the one hand, and on the other hand, it has given the Fed a lot of room for interest rate hikes. The newly released U.S. non-farm data verified this point. The unemployment rate rebounded after the low of 3.5%, reaching 3.7%. Although this is still far lower than the 4.2% natural unemployment rate , it proves that the US economic growth rate has cooled down.
On the one hand, these two determine that the urgency and necessity of the Federal Reserve's interest rate hike is not as strong as before, so by late October, global financial markets had rebounded. The cooling of economic growth, on the other hand, determines that the Fed's interest rate hike is not as sufficient as before, which is why the global bulk market has frantically counterattacked after the announced unemployment rate.
However, such a counterattack may be a bit too optimistic.
We can see this from the changes in the real interest rate. In fact, the real interest rate has only fallen a little from the high point and is still at a relatively high level.
Even if the Fed suspends interest rate hikes in the future, it will reduce the extent of interest rate hikes rather than stopping interest rate hikes. As CPI declines, the rise in real interest rates will drive the pull of US bond interest rates into a decrease in inflation expectations. In other words, there will be more room for real interest rates to rise.
This still puts pressure on the financial market.
. For precious metals, the pressure will probably be more obvious.
Recalling the performance of precious metals from the second half of last year to the beginning of this year, we will think of a word called inflation trading, because inflation expectations are indeed a price support for precious metals. The rapid decline in CPI will lead to the collapse of inflation trading logic, which is not a good thing for gold and silver.
Another point that gold prices are supported at the same time is market expectations. Since the Fed's aggressive interest rate hike may bring about a pre-bottom recession in the short term, this is a good opportunity for precious metals. However, the decline in CPI and the slowdown in the Fed's interest rate hike are probably repelling such expectations.
The most important point is that the main trading line of precious metals is not the interest rate hike itself in terms of the large cycle. If you look back on the rise and fall of gold in the past, you can find that the interest rate hike and the rate hike of rate hike cycle itself does not necessarily determine the rise or downward trend of precious metals. Changes in the global economic cycle are the real logic of precious metals, especially gold prices, and the interest rate hike and interest rate cut cycle is one of the collateral effects of rapid economic growth and economic recession.
Although in the past nearly a year, the main line of precious metal trading has been the changes in the Federal Reserve's monetary policy , such a main line is not the logic that will dominate precious metal trading for a long time. In the next period of time, the main line of trading in the precious metal market will gradually shift, from the interest rate hike itself to the prediction of economic growth.
So that is to say, in the short term, the period after the CPI is released, it is probably a period of drastic changes in the precious metal market, but after the dust settles, the bottom of precious metals brought about by economic growth will really appear.
This bottom may appear at some point in the first quarter from late November to next year. The current outstanding performance of gold and silver is likely to be just a reflection of the light before the bottom comes.
