Market sentiment has improved. In April, the price of gold concluded the month essentially flat at $4,611 per ounce. According to the short-term Gold Return Attribution Model (GRAM), a significant decline in market volatility, driven by the recovery in risk appetite, emerged as the primary negative factor weighing on gold prices. Concurrently, three factors provided counterbalancing support: · A weaker U.S. dollar · Strong inflows into gold-backed ETFs · Bargain-hunting activity following the substantial correction in March Global market volatility retreated markedly.
Global gold ETFs experienced robust inflows in April. This was led by Europe, driven by investor concerns in the region over a potential blockade of the Strait of Hormuz. Inflows in Asia and the United States were approximately one-third the size of those in Europe. Managed money net long positions in COMEX gold futures saw a slight increase to $1 billion, with overall positioning remaining solidly within a neutral range. Gold prices have stabilized since the beginning of May. The "Temporary" Narrative Returns While the scale of the recent Middle East crisis impact is significant, it has not yet been interpreted as signaling a fundamental shift in inflation or growth trends. Although the crisis remains unresolved, market sentiment, led by the U.S., has turned optimistic: · As the crisis escalated, the U.S. 2-year inflation breakeven rate initially climbed but subsequently retreated. · U.S. equities staged a strong rebound, propelled by improved risk appetite, and sentiment in the options market has also stabilized. · The U.S. has been relatively insulated from the energy shock, and consumer spending currently retains considerable resilience. Investors face a dilemma: 1. A major geopolitical crisis persists, yet a clear trigger for a tactical shift of funds into gold is currently absent. 2. Gold prices are caught between short-term pressures and long-term structural support. Short-Term Pressures The short-term market environment offers limited positive support for gold: 1. Gold faces technical headwinds, though its long-term uptrend remains intact. · The March price pullback held key support near the 200-day moving average and the $4,075 per ounce retracement level. However, the subsequent rebound stalled below the 55-day moving average. · Gold prices may retest the 200-day moving average level. A sustained break below $4,075 per ounce would be required to provide a clearer technical signal of a price top. The technical picture is weak but overall stable. 2. The U.S. market perceives this shock as a manageable event. Both volatility premia and inflation expectations have declined, diminishing gold's appeal as a safe-haven asset. Market sentiment is unusually calm. 3. The supportive influence of the Federal Reserve's policy environment for gold has diminished. Interest rate futures already price in expectations for "higher for longer" rates. The possibility of further rate hikes remains. 4. The expected earnings buffer for U.S. equities has expanded significantly, with profit expectations for the coming year rebounding sharply. 5. Central bank gold buying demand remains structurally robust. However, their gold sales and swap operations continue to cause market concerns, exerting pressure on prices. Calm Before the Storm If the duration of this shock exceeds market expectations, gold could rapidly regain support: 1. Globally, the risk of stagflation continues to rise quietly. Economic surprise indices are showing characteristics of stagflation. 2. If geopolitical tensions fail to ease, global crude oil inventories could reach operational lows by September, potentially leading to disorderly oil prices and demand destruction. 3. Positioning in the gold futures market remains neutral, leaving significant room for upside. 4. Large-scale, highly leveraged U.S. Treasury basis trades, if unwound in a disorderly manner, could exacerbate a new round of deleveraging pressure. More fundamental structural support factors will likely re-emerge: · The trend of central bank gold accumulation continues. · Interest rates are ultimately expected to decline, even if the pace of rate cuts lags behind the economic slowdown. · The issues of high debt levels and fiscal deficits remain unresolved. · The effectiveness of bonds as a diversification tool is significantly reduced in an inflation-driven market shock environment. · The trend of diversification away from the U.S. dollar, while progressing gradually, continues to provide underlying support for gold. Looking Ahead In the short term, gold prices are likely to face headwinds and may continue to trade in a range. A new catalyst may be required to restart the structural uptrend.
Comments