From April to early May, after the price of gold hit a record high, it began to enter a shock adjustment.
Three major factors lead to short-term adjustment of gold
Since late May, gold has undergone significant adjustments. The adjustment pressure mainly comes from three aspects:
First, the risk aversion sentiment has cooled recently, and the US dollar liquidity problem that the market was worried about has not yet appeared. However, the safe-haven demand for gold has not yet increased. Since late May, the price of gold has adjusted sharply, but the VIX index, which reflects market panic, has not risen sharply, and remained at a low level of 13.11 as of June 3. Looking back at history, the VIX index broke through 20 to correspond to panic in the market, and the price of gold will be boosted by safe-haven buying.
Second, although U.S. inflation has cooled recently, the Federal Reserve is still not in a hurry to cut interest rates. At the same time, the real interest rate of the U.S. dollar, which measures the opportunity cost of holding gold, has rebounded recently, which has led to a cooling in demand for gold investment in the near future.
The picture shows the comparison between the real interest rate of the US dollar and the price trend of COMEX gold
From the empirical analysis, the gold price has little correlation with the demand for physical gold, and presents a medium positive correlation of 0.6 with the investment demand for gold.
Judging from the driving factors of this round of gold price rise, the demand for gold jewelry has declined, but the demand for investments such as gold bars and ETFs has increased significantly. Therefore, the recent gold price adjustment is mainly due to the reduction of ETF positions. As of June 3, the gold holdings of SPDR, the world's largest gold ETF, have dropped from about 838 tons in the previous period to about 832 tons.
The third is the profit-making liquidation of long orders of precious metals in the early stage
Fed rate cut will come sooner or later
From the perspective of the Fed's monetary policy, it mainly focuses on the two major goals of inflation and employment. Historical experience shows that the Fed mainly focuses on inflation during rate hike, while interest rate cuts focus on the job market. Judging from various recent indicators, the characteristics of the weakening of the US economy are obvious. Therefore, the Fed is currently in the stage of patiently watching economic indicators, and there is a high probability that it will still cut interest rates in the second half of the year.
Long-term factors drive gold prices to record highs
Different from traditional cyclical stocks, the fluctuation of gold price is not only affected by the relationship between supply and demand, but also by its unique triple attributes-commodity attributes, financial attributes and currency attributes, which makes its price trend more complex and changeable.
From the perspective of long-term driving factors, the "de-dollarization" central bank's gold purchases will continue to boost gold prices.
To sum up, the cooling of short-term safe-haven demand and the rebound of the real interest rate of the US dollar have led to a short-term adjustment in the price of gold. However, the debt problem in the United States, the trend of anti-globalization, and the decline in the credibility of the US dollar in the process of "de-dollarization" are all driving non-US countries.
Official institutions continue to increase their gold reserves. From a long-term perspective, under the background of the central bank's pursuit of asset diversification and "de-dollarization", the monetary and financial attributes of gold will become more obvious, and the price will also rise.
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