Is the "oil-gold seesaw" not working? Gold regains $4,100 mark, ETF outflows slow
[The "oil-gold seesaw" isn't working? Gold regains the $4,100 mark and ETF outflows slow down] The conflict between the United States and Iran has escalated, and oil prices have surged again, but the "oil-gold seesaw" seems to be out of action recently. The price of gold has broken through the lows recently, with the international gold price regaining the US$4,100/ounce mark. This year, a rare pattern of "oil and gold rising at the same time" has emerged. Institutional analysts believe that after continued net outflows, trading funds finally replenished gold, which dominated the recent recovery trend of gold prices.
The conflict between the United States and Iran has escalated, and oil prices have soared again. However, the "oil-financial seesaw" seems to be out of action recently. The price of gold has broken through the lows recently, with the international gold price regaining the US$4,100/ounce mark. This year, a rare pattern of "oil and gold rising at the same time" has emerged. Institutional analysts believe that after continued net outflows, trading funds finally replenished gold, which dominated the recent recovery trend of gold prices. After U.S. President Trump declared the "Memorandum of Understanding" invalid on July 8, the U.S.-Iran conflict broke out again and geopolitical tensions escalated. Affected by this, navigation traffic in the Strait of Hormuz dropped sharply and almost came to a standstill. International crude oil prices have rebounded from lows, with WTI crude oil futures rising from US$68/barrel to US$85/barrel. Cinda Futures Research Report believes that crude oil will maintain a highly volatile upward pattern, with the core operating range referring to 78-90 US dollars per barrel. The direction depends on whether the conflict further escalates to the energy infrastructure level. If the two sides resume diplomacy and ease the intensity of the blockade before the memorandum expires on August 16, oil prices will fall back. When the conflict between the United States and Iran broke out in March, global investors were deeply impressed by the surge in oil prices and the decline in all other major asset classes. Especially for gold, not only has the traditional hedging logic failed, but the logic that "inflation will lead to the Fed lowering expectations of interest rate cuts or even raising interest rates" has taken over, causing gold prices to fall sharply from their highs. At the end of June, the international gold price fell below 4,000 US dollars per ounce, falling nearly 30% from its high point. It is worth noting that the "oil-gold seesaw" seems to have failed recently. After crude oil prices started to rise again, gold prices also began to quietly rebound. This year, a rare pattern of "oil and gold rising at the same time" appeared. After holding the US$4,000 mark last week, COMEX gold futures prices continued to rise this week and have recovered the US$4,100 mark. From a technical point of view, gold prices broke through the 5-day, 10-day, and 20-day moving averages in one fell swoop. Chart: Recent price trends of COMEX gold futures and WTI crude oil futures The Industrial Securities Fixed Income & Multi-Asset Research Team further pointed out that gold is significantly insensitive to negative signals and is marginally desensitized to the traditional pricing anchor of "real interest rates." Interest rate hike trade continues this week, but gold prices refuse to fall. Next week, the Federal Reserve will hold its July interest rate meeting. CME Group's "Fed Watch" tool shows that the probability of raising interest rates at least once before the end of the September interest rate meeting is close to 80%, and the 30-year U.S. Treasury bond yield is close to 5.20%. The Fixed Income & Multi-Asset Research Team of Industrial Securities believes that the core reason for the desensitization of gold prices is the change in capital allocation and the re-investment of trading funds in gold. Funds returned to gold, on the one hand, because short positions were fully cleared in the first half of the year and funds were covering against the trend. In March and June, global gold ETFs had net outflows of 84.3 tons and 73.9 tons respectively. On the other hand, global technology stocks have recently shifted from unilateral rise to high volatility, and the siphon effect has weakened. In addition, the "bad" news of interest rate hikes may have been priced in advance. As of July 22, the holdings of SPDR Gold Trust, the world's largest gold ETF, were 1,007.87 tons, with a net increase of 8.85 tons this week. The FICC team of Zheshang Bank predicts that the possibility of new lows for precious metals is low. Since June, gold and platinum have gradually stabilized, and the outflow rate of gold ETF funds has also slowed down. At the same time, the resilience and attractiveness of gold at US$4,000 is much stronger than that at US$5,000. We must wait patiently for the next wave of market conditions. Despite the replenishment of trading funds, the sustainability of gold's subsequent upward surge remains to be tested. Guotai Junan Futures believes that the bullish trend has a strong continuation. After the gold price stabilizes at 4,100 US dollars/ounce, it is expected to further see a strong breakthrough of 4,200-4,250 US dollars/ounce before following the trend. If there is no new catalyst, there is a high probability of falling back under pressure, and the benchmark strategy is to be bearish on highs. The Fixed Income & Multi-Asset Research Team of Industrial Securities believes that gold is likely to maintain wide fluctuations in the short term. The long window has not yet opened, and the trend may have to wait until after September. The core variable is whether the Federal Reserve can release a dovish signal.