There has been a strange phenomenon in the investment market recently, that is, the price of gold has begun to derail from the trend of U.S. interest rates and the U.S. dollar. The past situation of rising U.S. interest rates and falling gold no longer occurs.
The most exaggerated thing is that the United States released the March Consumer Price Index (CPI) on Wednesday. Compared with the previous month, the March CPI increased by 0.4% month-on-month and 3.8% year-on-year, both of which were higher than market expectations.
The rebound in inflation means that the chance of the Federal Reserve cutting interest rates is declining rapidly. According to the interest rate adjustment market, the probability of the Federal Reserve cutting interest rates in June this year has increased from more than 50% to more than 50%. After the release of the US inflation figures, it is like a free fall. Plug it in until it’s only 15%.
There is no hope of an interest rate cut in June, and the market estimates that the Fed will cut interest rates by a total of 0.38% this year. Based on each cut of 0.25%, it will only cut interest rates 1.5 times. The news caused U.S. bond interest rates to rise sharply and the U.S. dollar to rise.
After the release of inflation data, the 10-year U.S. Treasury bond interest rate soared 0.182% to 4.51% that day, breaking the 4.5% mark in one fell swoop. The U.S. dollar index also rose 1%, hitting 105.18 that day, the largest one-day rise since March last year.
The rapid cooling of expectations for U.S. interest rate cuts should have been bad for gold, but miraculously, the price of gold only fell slightly that day. One day later, the price of gold reached a new high, rising to $2,376 per ounce on Thursday. There is a strange phenomenon that when U.S. interest rates rise, interest-free gold also rises.
However, this phenomenon no longer occurs this year. Gold has risen by more than 14% this year. Based on the low level in 2015, the price of gold has risen by more than 120% in the past nine years. The most special thing is that since the middle of last year, the price of gold has risen by more than 120%. , the negative correlation between gold, the U.S. dollar, and U.S. interest rates has gradually disappeared. In the past, the key factor in judging gold prices was to look at the trend of U.S. interest rates and the U.S. dollar.
If U.S. interest rates rise and the U.S. dollar rises, gold, as a currency without interest, will fall. However, the United States continued to raise interest rates last year, and the price of gold was still quite strong, with a limited decline. By late March this year, both gold and the U.S. dollar index were rising, which meant that gold was decoupled from the trend of U.S. interest rates.
The factor behind the rise in gold prices is not the monetary nature of gold. Since buying gold requires you to endure the “pain” of not being able to earn 4.5% interest on U.S. bonds, it can be inferred that ordinary investors do not mind the lack of interest and continue to increase their holdings of gold.
The market estimates that central banks are the main buyers of gold. De-dollarization is one of the powerful explanations for the rise in gold prices. Central banks continue to sell U.S. debt. Even if they have foreign trade surpluses, they do not buy U.S. debt. Instead, they concentrate funds to purchase gold reserves, including those in China and Russia. Central banks of many countries, including the US dollar, have continued to increase their holdings of gold, which has given huge support to the price of gold.
Therefore, it has become a situation where US dollar bonds and gold have their own supporters. As a major buyer of gold, many central banks are considering using gold as a stable asset alternative when they are unwilling to purchase U.S. bonds.
Of course, in addition to political considerations, de-dollarization is also due to the issue of massive debt issuance in the United States. The U.S. deficit is high and is rising rapidly at a rate of US$1 trillion in national debt every 100 days. This means that the US will push US$300 billion in national debt out of the market every month.
With more supply and less demand, it is natural to raise debt interest rates to increase attractiveness. However, such a huge supply also carries the risk of collapse. To a certain extent, some buyers would rather buy interest-free gold than high-interest U.S. bonds.
This situation is equivalent to the fact that in the past few years, China’s real estate bonds have paid high interest rates of more than 10%. However, high interest rates mean high risks, so some investors do not want to take risks and would rather give up high interest rates.
Although the price of gold has reached its current level, giving people a feeling of being overwhelmed by the high altitude, the upward trend of gold has not stopped. Two gold stocks are very popular. The big stock is Zijin (2899), which is a big stock with a market value of 504.8 billion yuan.
The closing price on Thursday was 17.76 yuan. Zijin has been climbing since the beginning of this year, and Zijin is not only a gold stock, but also a major copper and gold stock, so rising copper prices are also beneficial to it.
For a more detailed gold stock, you can consider Zhaojin Mining (1818), with a market capitalization of only 44.9 billion. Although its operating conditions are worse than Zijin, the price of gold has soared, and Zhaojin’s stock price also hit a one-year high, closing at 13.72 yuan on Thursday.
Since the price of gold is rising so rapidly, one must have a speculative mentality when buying gold stocks, and one can only take advantage of the trend and speculate.
Source by bastillepost
