Rising Towards the Sun in the Darkest Moment

Peterson

Commodity

Forex

Economic

Summary:

The U.S. Dollar Index (USDX) rose for 11 weeks in a row, and the rebound of spot gold was also blocked. The price of gold once again fell to US$1,860 and also fell below the overall operating range of US$1,884-1,990. The panic caused by long-term concerns about high interest rates is the main reason. However, we could hold an optimistic outlook, as gold prices might rise towards the sun in the darkest moment.

In the past, the price of gold has attracted much attention. On the one hand, the gold price in China is too high; on the other hand, it keeps falling on the international market. The gold price in China is still at a historical high, while the international gold price has fluctuated all the way down from the high in May. The bearish mainstream bias in the market has seen a low of US$1,800 in the year. The uptrend logic in China is still the investment channels and exchange rate factors, which have also stimulated many cross-border gold dealers, so I will leave it here for the time being. The depressed factor of international gold price is also relatively clear, that is, the strong upward trend of the interest rate of USD and U.S. Treasury Securities. The deeper reason behind it is that the sharp upward trend of energy prices has once again caused inflation to rise. U.S. crude oil rose from US$67 in July to US$94, with a range as high as 40%. The rise of inflation has become unstoppable. Moreover, the U.S. data show that the possibility of a soft landing of the economy is increasing and employment is still improving, which is also the backbone of the U.S. authorities.

But is the real economy really as optimistic as the U.S. authorities think? At present, the U.S. economy is facing triple pressures. One is that the repayment of student loans due on October 1 will greatly affect consumption, the other is the risk of government closure on September 30, as well as a large-scale strike in the automobile industry. The U.S. automobile industry strike, which has been going on for 2 weeks, is an unexpected event, but is equally capable of influencing sentiment and could even affect next month's non-farm payrolls data (if the strike lasts beyond 9 October). At present, Biden supports workers to raise their wages by 40%. If the strike is ended by compromise, it will greatly increase the pressure of inflation, which will once again push up the expectation of raising interest rates in November or even later, which may be a great blow to automobile companies. However, nothing comes for free, and it will eventually hit consumption and the economy. In addition, the U.S. federal government will end this fiscal year on September 30, and the two parties in the U.S. Congress have still failed to reach an agreement on the spending bill. The possibility that the U.S. government will be shut down on October 1 is increasing.

What's next for the gold price? It may be the darkest hour for gold prices at the moment, and we investors may not be too pessimistic, as gold prices have hit highs several times over the past 2022 in the most dramatic rate hiking cycle for the USD, with more factors being the over-anticipated purchases of gold by global central banks as well as the timing of risks in the U.S. banking system. At present, the USD is at the end of the interest rate hike, but the high interest rate will be maintained for a long time, which is not good news for the gold price, but the gold price is rising towards the sun. For investment, we don't need to guess where the bottom is. Instead, we can wait patiently for the bullish signal. Instead of spending time trading, we can get a positive trend by waiting!

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Rising Towards the Sun in the Darkest Moment

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