Inflation in the United States is at a record high. Can gold rise again? This is the key!
The US June Consumer Price Index (CPI) announced this week rose by 5.4% year-on-year, higher than the expected 4.9%, and hit the highest level since 2008.
After that, U.S. Treasury Secretary Yellen predicted in an interview with US media CNBC that there will be more months of rapid inflation in the United States, but in the medium term, inflation will fall back to normal levels. Fed Chairman Powell expressed the same view this week.
The short-term inflation expectations of the interviewed US consumers for the next year was 4.8% in early July, far exceeding the 4.3% expected, the highest since August 2008.
Many people believe that high inflation and high inflation expectations in the United States should support gold, and gold should continue to rise. However, gold has risen and fallen in a week, and the weekly gain has been almost zero.
why is that?
Is gold short-term gaining momentum or lack of upward momentum?
Think about it, everyone. From June 11 to June 18, why did gold fall from above $1,900?
At that time, the Fed meeting showed that some officials discussed the possibility of reducing QE, and the market worried that the Fed would reduce QE ahead of schedule.
What about the rebound in gold after June 19?
It is related to the continued dove attitude of Fed Chairman Powell and Vice Chairman Williams. Powell took the trouble to emphasize that inflation is temporary, so there is no rush to reduce QE.
But it's different now!
Inflation data hits new monthly highs! Inflation may fall, but how strong is it?
According to a Reuters survey on July 12-15, 39 of 41 analysts believe that the Fed will completely stop the purchase of bonds related to the epidemic before the end of 2022. Although the analyst's view may not be correct, it reflects the current market consensus!
There is a growing consensus in the market that the Fed has a high probability of starting to reduce QE this year. Then there will be pressure on gold.
Therefore, not only gold, but also crude oil, copper, and silver prices have been weak this week. And because it is only an expectation, the adjustment range of gold is still relatively limited.
Therefore, the current inflation situation in the United States is conducive to gold, and the expected reduction of QE puts pressure on gold. However, inflation tends to fall appropriately in the later period, and the continuously rising inflation may put more pressure on the Fed.
Inflation has put more pressure on the standard of living for low- and middle-income families. In high-income households, a large number of discretionary purchase activities have been delayed. It is also detrimental to the US economy.
Although Powell's attitude is still biased, the current employment gap is still about 7.6 million compared to before the epidemic, but inflation is too high. Historically, the Fed’s attitude has also turned up very quickly.
The Fed may reduce QE earlier than previously expected, and gold may face medium-term pressure.
This may be the main contradiction facing gold at present!
Another key to the fundamentals is that the market may not be so optimistic about the strength of the US economic recovery. The continued decline in the yield on the 10-year U.S. Treasury bond reflects this concern, which I have talked about for two consecutive weeks.
If the rebound of the US economy and the global economy is not as strong as previously expected. Then commodity prices may be under pressure to fall.
The PBC’s RRR cut last week can be said to be a hedge against China’s economic slowdown in the second half of the year.
Therefore, the possibility of adjustment of commodities such as crude oil and copper deserves special attention. At the same time, gold and silver, as commodities, will also face pressure. Of course, gold will behave in the global market with obvious risk aversion, and it will be relatively strong, but silver will not work. In other words, the possible medium-term prospects for silver are not too optimistic.
