US inflation has further declined. The non-farm payrolls data has performed poorly and there has been a significant downward revision of previous data, slightly increasing the risk of recession. However, since the American consumer market remains stable, the concern is not significant.
Many officials of the Federal Reserve have sent out signals of interest rate cuts. A rate cut by the Federal Reserve in September is a foregone conclusion. The uncertainty lies in the subsequent rate cut rhythm.
The European economy remains sluggish, with slow economic growth and low market confidence.
Geopolitical risks are still relatively high. The derivative risks from the Russia-Ukraine conflict and the Israel-Palestine conflict cannot be ignored, and there is widespread demand for market risk aversion.
In general, the recent strengthening of expectations for interest rate cuts by the Federal Reserve has provided strong support for precious metals, keeping the upward drive for precious metals still in place. However, considering that the market has already digested the interest rate cut expectations well in the early stage, further upward movement of precious metals may require more weak economic data for support. The rate of increase of precious metals in the future market may slow down.
Market Review:
In August, the precious metal market first declined and then rose. At the beginning of the month, due to the unexpected interest rate hike by the Bank of Japan and the liquidity crunch caused by the reversal of carry trades, Japanese stocks fell sharply and transmitted risks to various assets. As a result, gold and silver also experienced a significant pullback. However, after mid-August, the market gradually stabilized. Gold and silver rebounded through fluctuations. Subsequently, under the continuous signal of interest rate cuts released by Federal Reserve officials, gold and silver climbed further. Among them, gold continuously hit new highs.
Analysis of Price Influencing Factors:
- Macro-finance:
For the United States, inflation concerns are gradually disappearing, and downward pressure on the economy continues to emerge. A rate cut by the Federal Reserve in September is basically a certainty.
In terms of inflation, the decline in various inflation data in July exceeded expectations, further dispelling concerns about upward inflation. In July, the year-on-year increase in the US Producer Price Index (PPI) was 2.2%, with an expected increase of 2.3%; the year-on-year increase in core PPI was 2.4%, with an expected increase of 2.7%. The year-on-year increase in the US Consumer Price Index (CPI) in July was 2.9%, with an estimated increase of 3%, and the previous value was 3%. The year-on-year increase in core CPI in July was 3.2%, with an estimated increase of 3.2%, and the previous value was 3.3%. In July, the year-on-year increase in the core Personal Consumption Expenditures (PCE) price index was 2.6%, unchanged from the previous value, and the expected increase was 2.7%; the year-on-year increase in the PCE price index was 2.5%, with an expected increase of 2.6%, and the previous value was 2.5%. The US economic sentiment indicators released in August also continued to weaken. In terms of employment, the data weakened significantly, and market concerns about the job market rose. In July, non-farm payrolls in the United States increased by 114,000, the lowest since December 2020, far below the expected 175,000. The unemployment rate rose to 4.3%, and the expected rate was the same as 4.1%. In July, hourly wages rose by 0.2% month-on-month, with an expected increase of 0.3%. It is also worth noting that the US Bureau of Labor Statistics recently revised down the total number of non-farm employment in March 2024 by 818,000, a downward revision of 0.5%, indicating that the US job market is not as strong as previously shown by the data. In terms of economic sentiment, the preliminary value of the US S&P Global Manufacturing PMI in August was 48, significantly lower than the expected 49.6; the preliminary value of the services PMI was 55.2, with an expected value of 54; the preliminary value of the composite PMI was 54.1, with an expected value of 53.5. In terms of consumption, there is still some resilience. In July, retail sales in the United States increased by 1.0% month-on-month, with an expected increase of 0.3%; core retail sales increased by 0.4% month-on-month, with an expected increase of 0.1%. The final value of the University of Michigan Consumer Sentiment Index in August was 67.9, slightly higher than the preliminary value of 67.8, and the final value in July was 66.4.
The Federal Reserve continued to send dovish signals in August, paving the way for a rate cut in September. Since August, many Federal Reserve officials have spoken and supported a rate cut in September. Among them, the Federal Reserve chairman said at the Jackson Hole Global Central Bank Annual Meeting that the time for policy adjustment has come; neither seeking nor welcoming further cooling of the labor market. The minutes of the Federal Reserve discount rate meeting showed that the board members of the Federal Reserve Bank of Chicago and the Federal Reserve Bank of New York voted in favor of a 25 basis point cut in the discount rate in July. According to the Federal Reserve observation tool, the market also considers a one-time 50 basis point rate cut by the Federal Reserve as a possible option.
For Europe, economic growth has not yet recovered, and market confidence is weak. In terms of economic growth, the revised value of eurozone GDP in the second quarter increased by 0.6% year-on-year, as expected, showing that the economy is still sluggish. The eurozone unemployment rate in July was 6.4%, with an expected rate of 6.5% and the previous value of 6.5%. The employment situation has slightly improved. However, on the whole, the eurozone’s performance remains sluggish, and the manufacturing sector continues to shrink. The eurozone ZEW Economic Sentiment Index in August was 17.9, compared with the previous value of 43.7; industrial output in the eurozone in June decreased by 3.9% year-on-year, with an expected decrease of 3.0%. The preliminary value of the manufacturing PMI in August was 45.6, with an expected value of 45.8; the preliminary value of the services PMI was 53.3, with an expected value of 51.9; the preliminary value of the composite PMI was 51.2, with an expected value of 50.1. The preliminary value of the eurozone consumer confidence index in August was -13.4, with an expected value of -12.6, and the final value in July was -13. Inflation continues to decline. The preliminary value of eurozone CPI in August increased by 2.2% year-on-year, as expected, and the final value in July was 2.6%. The preliminary value of core CPI increased by 2.8% year-on-year, with an expected value of 2.7%, and the final value in July was 2.8%.
It is also worth noting that there are still no signs of improvement in the Russia-Ukraine conflict and the Israel-Palestine conflict, and the resulting geopolitical risks remain high, driving market demand for risk aversion. In August, Ukraine launched attacks on Russian territory. Russia launched large-scale attacks on Ukraine’s energy infrastructure, causing power outages in multiple regions of Ukraine, and the intensity of the fighting between the two sides increased. In terms of the Israel-Palestine conflict, Hezbollah in Lebanon launched a large-scale attack on Israel on August 25. Israel declared a state of emergency and launched a counterattack against Lebanon. Previously, due to the death of the Hamas leader in an attack in Iran, Iran vowed to retaliate against Israel, but this retaliatory action has not yet unfolded, and the market still has obvious concerns.
In general, the decline in US inflation has further strengthened the expectation of a rate cut by the Federal Reserve. The rebound of Japanese stocks and the resilience of US economic data have partially dispelled concerns about recession, providing bullish support for various assets. Coupled with the demand for risk aversion brought by geopolitical risks, the bullish support for precious metals is relatively solid.
- Position Analysis:
As of August 30, 2024, the holdings of SPDR Gold ETF were 862.74 tons, an increase of 17.27 tons compared with the previous month. As of August 27, 2024, the net long position of non-commercial longs in COMEX gold was 294,445 contracts, an increase of 47,844 contracts compared with the previous month.
As of August 30, 2024, the holdings of SLV Silver ETF were 14,493.329857 tons, an increase of 155.82 tons compared with the previous month. As of August 27, 2024, the net long position of non-commercial longs in COMEX silver was 52,186 contracts, an increase of 3,125 contracts compared with the previous month.
Strategy:
In general, the strengthening of the expectation of a rate cut by the Federal Reserve recently has provided strong support for precious metals, and the upward driving force for precious metals still exists. However, considering that the market has already digested the rate cut expectation well in the early stage, further upward movement of precious metals may require more weak economic data for support. The rate of increase of precious metals in the future market may slow down.
Reproduction Notes：InvestFancy » As liquidity turns loose, precious metals are bullish in the long term