Recently, the U.S. economy and inflation data have gradually shown a certain degree of resilience. Data released shows that the number of initial jobless claims in the United States for the week ending October 19 was 227,000, lower than the expected 242,000 and the previous value of 241,000. The number of continued unemployment benefit recipients increased to nearly 1.9 million in the previous week, the highest level in nearly three years.
In October, the U.S. Markit manufacturing, service, and composite PMI all warmed up compared to September, setting a two-month high, with 50 being the dividing line between prosperity and decline. In September, new home sales were annualized at 738,000 units, expected to be 720,000 units, and the previous value in August was 716,000 units. The month-on-month increase in new home sales in September was 4.1%, expected to be an increase of 0.6%.
In September, the United States added 254,000 non-farm payrolls, higher than the expected 140,000 and the previous value of 159,000. The U.S. unemployment rate in September was 4.1%, lower than the expected and previous 4.2%.
In terms of inflation data, the U.S. core CPI year-on-year value in September was 3.3%, higher than the expected and previous 3.2%, and the month-on-month value was 0.3%, higher than the expected 0.2%. The key retail sales data also exceeded expectations, with the U.S. retail sales month-on-month value in September being 0.4%, higher than the expected 0.3% and the previous value of 0.1%.
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Under the tightening stance of the Federal Reserve's monetary policy and the resilience of U.S. economic data, expectations for a significant interest rate cut by the Federal Reserve have cooled. Surprisingly, the narrowing of the interest rate cut path did not suppress the rise in gold prices. Gold repeatedly hit new highs, with COMEX gold setting a record for the 34th time this year, breaking through $2,763.1 per ounce. Since the 23rd, gold prices have fluctuated at high levels, with short-term volatility increasing. As of the close on the 25th, the decline in COMEX gold over the past three days reached *%.
Professionals point out that the recent correction in gold prices is mainly due to the continuous rise in the U.S. dollar index. There is no more macro news to stimulate the safe-haven demand for gold, and the market chooses to take profits. From a technical perspective, it is still in an upward trend.
The logic of gold price increases has changed.
Since late September, the explanatory power of U.S. Treasury real interest rates on gold prices has failed again. The simultaneous rise of the dollar and gold indicates a shift in the driving force behind the rise in gold prices. The "Trump trade" targeting U.S. fiscal policy and inflation has become the main factor driving the rise in gold prices.
Trump advocates a policy combination of "tax cuts + tariffs," corresponding to higher economic growth, debt growth, and inflation prospects. The market has started to price "reflation" again, providing additional support for gold prices.
Gold has three basic attributes: currency, commodity, and finance, as well as two major functions: risk aversion and inflation resistance. In terms of recent influencing factors, doubts about the Federal Reserve's interest rate cuts and other factors have boosted the safe-haven currencies, the U.S. dollar and gold.First and foremost, the driving force behind the rise in gold prices is its safe-haven attribute. Recent events, including the ongoing conflicts in the Middle East, have increased the demand for gold as a safe-haven asset.
According to analysis by Oversea-Chinese Banking Corporation (OCBC), there has been a significant divergence in recent major opinion polls, increasing the uncertainty of election outcomes. This has made strategies to hedge against the risk of Trump's election, namely, buying gold, more favored.
In addition to these factors, the following aspects are also key contributors to the rise in gold prices:
1. The Federal Reserve's interest rate cut catalyzes a shift to loose monetary policy among global major economies.
The Federal Reserve's ultra-large interest rate cut has initiated a global rate-cutting trend. On September 18th, the Federal Reserve announced a significant interest rate cut of 50 basis points (BP). In the same month, the European Central Bank, Bank of Canada, Bank of Indonesia, South African Reserve Bank, Saudi Arabian Monetary Authority, Central Bank of Kuwait, Central Bank of Bahrain, Central Bank of the United Arab Emirates, Qatar Central Bank, and Reserve Bank of New Zealand all announced follow-up interest rate cuts.
Entering October, the Bank of Korea announced a reduction in the benchmark interest rate by 25 basis points to 3.25%. Recently, the European Central Bank lowered its three key interest rates by 25 basis points, marking the third interest rate cut this year; the Bank of Canada announced a reduction in the benchmark interest rate by 50 basis points, from 4.25% to 3.75%, which is the fourth interest rate cut by the Bank of Canada. China's central bank has also reduced reverse repo rates by 20 basis points, LPR quotes by 25 basis points, and initiated a new round of deposit rate cuts.
2. Sustained demand for gold.
a) International capital flows towards gold ETFs.
In September, North American ETF funds recorded inflows for the third consecutive month, making it the region with the most significant expansion in ETF asset management scale. Thanks to the continuous inflow of funds recently, the global gold ETF's year-to-date fund flows have turned positive from negative, mainly due to market bets on future interest rate cuts and expectations of loose monetary policies.2. Multiple Central Banks Join Gold Purchases
According to data from the World Gold Council, global central banks' net gold purchases in the second quarter of 2024 increased by 6% year-on-year to 184 tons, demonstrating that the demand for gold from central banks remains strong.
Another noteworthy change is reflected in the second-quarter data of the State Oil Fund of Azerbaijan. As of the end of the second quarter of this year, the total gold holdings of the State Oil Fund of Azerbaijan stood at 114.9 tons, 13 tons higher than at the end of 2023. Its gold holdings increased by 10 tons in the second quarter, achieving the largest quarterly increase since the second quarter of 2019 (+23.7 tons).
Recently, central bank officials from Mexico, Mongolia, and the Czech Republic, among other countries, have publicly expressed their support for continuing to increase gold reserves at the annual industry conference of the London Bullion Market Association held in Miami.
How will gold prices trend in the future?
In the short term, gold prices are closely related to safe-haven sentiment. In the medium to long term, the center of gold prices may have shifted higher, a trend worth paying attention to. The global economic growth pattern and the reshaping of supply chains, along with the upward shift in the inflation center, will have a long-term impact on gold pricing.
How to invest in gold?
— For clients who are optimistic about future gold price increases
On October 17, Huaxia Fund announced a fee reduction. Starting from now, the annual management fee rate for Huaxia Fund's gold ETF, Huaxia (518850), will be reduced from 0.5% to 0.15%, and the annual custody fee rate will be reduced from 0.1% to 0.05%. After this reduction, the gold ETF Huaxia (518850) has been reduced to the lowest fee rate level among similar products in the entire market. For investors, this means they can better seize investment opportunities in the gold sector at a lower fee rate level.Golden ETF Huaxia (518850) closely tracks the gold price trend, supports T+0 trading, and is suitable for investors with asset allocation needs. Gold can be used as a base for asset allocation, with one hand (100 shares) of the Golden ETF corresponding to 1 gram of real gold. The investment threshold is low, and there are no storage costs. T+0 trading means funds do not stay overnight, and the trading efficiency is relatively high. Investors without an in-venue securities account can also consider the off-venue Golden ETF Linked C Fund (008702), which does not charge redemption fees after seven days.
——For those who are optimistic about the future profit performance of individual stocks in the gold industry chain and seek to appropriate gains from the equity market's upward movement and pursue higher elasticity, off-venue linkages (021074/021075) are an option.
After the gold price reached a new high at the end of May, the SGE Gold 9999 on the Shanghai Gold Exchange has seen an increase of 8.31% over the past five months. However, individual stocks in the gold sector have been affected by the decline in the equity market, with the SSH Gold Stock Index, which tracks gold stocks, falling by 13.21% during the same period, significantly deviating from the gold price.
Currently, listed companies in the gold industry chain are gradually disclosing their third-quarter reports. Xingye Bank, Hunan Gold, Shandong Gold, and Shandong Gold International have disclosed their third-quarter results, with an average net profit increase of 87.5%, still maintaining a high growth rate.
Gold stocks tend to move in the same direction as gold prices but with higher elasticity, which may amplify the value of gold during upward price movements. As the A-share market warms up, gold stocks are expected to see a catch-up rally.