To The Moon

The combination of multiple factors, such as high inflation in the United States, interest rate hikes by the Federal Reserve, the US dollar index breaking the 100 mark and geopolitical crisis, makes the analysis framework of gold unprecedentedly complicated. It can be said that gold is facing the most complicated environment since the financial crisis in 2008, and the price of gold has also experienced obvious fluctuations recently. Naeem Aslam, chief market analyst at AvaTrade, said that gold prices may continue to fluctuate because investors are adjusting their portfolios with hawkish policies of the Federal Reserve and paying close attention to the impact of the Ukrainian crisis on the economic situation.

Short-term inflation in the United States is difficult to contain

The recently released inflation data of the United States in March continued to grow, while gold rose sharply. We believe that this is not gold's anti-inflation, but the expectation that the US economy will fall into recession and return to easing.

According to the non-quarterly CPI adjustment in the United States in March, the annual rate was as high as 8.5%, the highest since December 1981. The rising prices of crude oil and energy were the main factors driving inflation to continue to rise in March. The end of February to March is the most sensitive period of the conflict between Russia and Ukraine. Under the influence of many factors, the crude oil price surged for a short time, hitting a high level for more than ten years, but then the oil price dropped rapidly. If the crude oil returned to its original operating range in the second quarter, the inflation in the United States will probably fall. In fact, the gold surge implies a short-term bearish view of the oil price.​​

However, we believe that the inflation pressure in the United States comes not only from energy, but also from food and service industries. The insufficient output of agricultural products and the rising cost of low-end labor will continue to push inflation upward after the oil price returns to a stable level, so the logic of gold rising is not valid.

Will the pace of Fed tightening slow down?

Goldman Sachs, an international investment bank, predicts that the inflation rate in the United States will be lower than 4% this year, while the stock market growth will be relatively flat and the price of gold will exceed $2,500.The analytical framework of Goldman Sachs, an international investment bank, on gold is basically similar to the view that the US economy falls into recession and the policy returns to easing. However, from Goldman Sachs' statement, it can be seen that Goldman Sachs pays more attention to the relationship between inflation and Fed policies.

The subtext of Goldman Sachs is that the US economy is running smoothly under the condition of low inflation, and the Federal Reserve will not tighten monetary policy. We believe that the Fed will continue to raise interest rates regardless of inflation and whether the economy has entered a bottleneck period. The Fed's monetary policy obviously takes a longer-term view than the market. Fed officials are concerned about the normalization of monetary policy and making sufficient preparations for the economy to really fall into recession.

In addition, the inflation rate in the United States is lower than 4%, which does not mean that the real interest rate will fall. If the nominal interest rate remains high in a short time, the impact of the real inflation fall may be that inflation expectations will also fall and the real interest rate may rise. Therefore, it is unlikely that the price of gold will exceed $2,500 this year.

Gold will remain volatile in the medium term

However, in the declining status of the US dollar, no credit currency can replace the US dollar, and non-evil gold has become an important substitute. Gold and silver are naturally not money, Money is naturally gold and silver, Before the emergence of a new strong currency, Gold may benefit the most in the process of de-dollarization. No matter whether gold rises or falls in the short term, the long-term implied value of gold is greater than that of any credit currency, and its liquidity is second only to the stocks and bonds of major economies. However, the current high probability of gold price has touched the upper edge of gold's medium-term shock.

In recent months, the cost of stock options has started to rise, but the implied volatility of gold options has declined, and the performance of short-term gold prices is in sharp contrast with the implicit decline, which shows that the rise of gold prices is still within an acceptable range and has not broken through the original shock range, and the option market still maintains a volatile view on gold.

Figure 2: The implied volatility of Chicago Mercantile Exchange gold options lags behind the implied volatility rise of stock index options

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There is another reason why we are not optimistic about the performance of gold stagflation period. Although the American economy is very strong, The real interest rate of US Treasury bonds is still at a low level, but the extremely low real interest rate may retaliate under the action of raising interest rates and shrinking the table, and now the far-end real interest rate has begun to react. After shrinking the table, the real interest rate may react more violently, and gold is already at a high level in the short and medium term.

On the whole, Driven by an inflationary spiral, Inflation in the United States will fluctuate at a high level, Even if the U.S. economy shows many characteristics of impending recession, The Fed will not stop the normalization of monetary policy, Long-term real interest rates still have a lot of upside, The short-term price surge provides a better opportunity for market participants to enter the market. Investors can pay attention to the high-position short-order opportunities of Shanghai Gold (USD) Futures (Contract Code: SGU) and Shanghai Gold (Offshore RMB) Futures (SGC) of Chicago Mercantile Exchange. Considering the exchange rate impact of US dollar and RMB, we believe that Shanghai Gold (USD) FuturesEmpty orders are more cost-effective.

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