Supported by Three Positives, Can Gold Prices Resume the Bull Market?
During the Asian session on Monday (July 12), spot gold remained stable at around 1808. Gold prices continued to rise slightly last Friday, mainly supported by the risk aversion of the spread of the epidemic. In addition, the news of China’s RRR cut and the fall of the U.S. dollar are also conducive to The price of gold. However, the overall surge in US stocks has restricted the upward trend of gold prices, and the market is also quite afraid of the Fed’s forthcoming announcement of a reduction policy.
The recent weak data released by the United States and the surge in new crown cases in many parts of the world have exacerbated concerns that the global economic recovery is losing momentum, causing the 10-year U.S. Treasury yield to abruptly halted on Friday for eight consecutive days. . The three major U.S. stock indexes all set record closing highs on Friday, and financial stocks and other economic-focused sectors rebounded from the sell-off triggered by growth concerns earlier this week. This rebound has pushed the three major stock indexes to rise slightly this week, and US Treasury bonds have also risen sharply this week. Investors worry that as the Delta variant virus spreads around the world, the US economic recovery may be losing momentum.
The Fed stated in its semi-annual monetary policy report on Friday: “With the support of loose monetary and fiscal policies, progress in vaccination has promoted the reopening of the economy and strong growth. However, the impact of the epidemic continues to put pressure on the U.S. economy. Employment is still far below the level before the outbreak.” The semi-annual monetary policy report pointed out that the Fed’s asset purchase action and its commitment not to raise interest rates until inflation and employment targets are achieved will help ensure that monetary policy continues to serve the economy. Provide strong support until a full recovery is achieved.
The People’s Bank of China announced on its website that it will lower the reserve required ratio of financial institutions by 0.5 percentage points on July 15, excluding institutions that have implemented a deposit reserve ratio of 5%. The person in charge of the central bank predicted in the question and answer that the RRR cut will release about 1 trillion yuan in long-term funds. The central bank said that the RRR cut will reduce the funding cost of financial institutions by about 13 billion yuan per year, and the transmission through financial institutions can promote the reduction of social comprehensive financing costs. After this reduction, the weighted average deposit reserve ratio of financial institutions was 8.9%.
In the announcement of the RRR cut, the central bank also stated that the prices of some commodities have continued to rise this year, and some small and micro enterprises are facing operating difficulties such as rising costs. In the next step, liquidity will be maintained reasonably and abundantly, and the growth rate of the money supply and the scale of social financing will basically match the growth rate of the nominal economy. According to Dariusz Kowalczyk, head of Asian research at Alibaba Group, the RRR cut is faster than expected, reflecting the desire of policymakers to improve liquidity and stimulate credit. There may be more easing policies in the second half of the year.
This week, we will focus on important data such as the US June CPI, China’s second quarter GDP, and the three central bank interest rate decisions.