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In recent days, after a decline during the National Day holiday, the price of gold has rapidly rebounded. In the evening session yesterday, the main contract for gold on the Shanghai Futures Exchange jumped 1.42% and reached a high of 2.60% at the close of the evening session. During the early morning session today, as of 9:40 am, the main contract has experienced a slight retreat but still has a 2.04% increase.
According to a previous report by Cailian Press, the escalation of the Israeli-Palestinian conflict is the main reason for the surge in gold prices. Tom di Galoma, Managing Director and Co-Head of Global Interest Rate Trading at BTIG, said, “Today is a safe-haven day… Investors will mostly buy safe assets.”
In the early hours of last Friday, the Israeli Defense Forces informed the United Nations that all Palestinians in the northern Gaza Strip should relocate to the southern Gaza Strip within 24 hours. Shortly before the submission of this article, according to a report by CCTV News, the Israeli Defense Forces announced that they were conducting “large-scale” airstrikes on multiple Hamas targets in the Gaza Strip.
Liu Siyuan, Chief Analyst at Lingxiu Finance, stated to the media that the price of gold is mainly influenced by the economic policies of major global economies, physical gold demand, and international geopolitical factors. These three factors have alternately affected the price of gold recently, leading to a “V-shaped” reversal.
Gold jewelry remains the main consumer product for jewelers
During the National Day holiday, the decline in the price of gold futures temporarily reduced the customer flow for physical gold and gold jewelry.
However, recently, the World Gold Council released the “Insights into China’s Gold Jewelry Retail Market in 2023” report, pointing out that gold jewelry remains the absolute mainstay in the inventory of Chinese jewelry retailers.
The report shows that as of the first half of 2023, gold jewelry accounted for 67% of the inventory of jewelry retailers, a significant increase from 52% in 2021. The next highest is diamond-set jewelry, which accounts for 17% of the retailer’s inventory, a slight decrease compared to 2021. In addition, due to its increasing popularity, hard gold jewelry has also occupied an important position in the retailer’s inventory, reaching 23%.
The association also stated that although most people believe that the gold jewelry market in their region has reached saturation or oversaturation, some people still believe that there are opportunities, and most of these optimists come from fiercely competitive first-tier cities. Based on the survey results, 73% of respondents believe that the number of gold jewelry retail stores in their city is sufficient or even excessive, but at the same time, 27% of respondents believe that there is still room for expansion.
The rapid rise and fall of the gold price may affect consumer purchases
Although many institutions still have a long-term positive view on gold prices, the short-term rapid fluctuations in the gold price still cause concerns for consumers and investors.
Zhang Yi, Chief Analyst at iResearch Consulting, told Cailian Press that the continuous increase in the price of gold in recent years is closely related to the risk aversion mentality of global consumers and investors. The rapid rise and fall of the gold price is a very severe test for manufacturers, as it means that the uncertainty of profit acquisition for manufacturers is increasing. It also brings about a great sense of watchfulness and panic among consumers, which is unfavorable for market stability and can also affect the sales of gold products.
Looking ahead to gold futures operations, Yide Futures analysis suggests that although the “civilian evacuation deadline” agreed upon by Israel has passed, the Israeli military has not yet entered Gaza. However, various signs indicate that the Israeli military will still launch a ground offensive in Gaza, further intensifying regional tensions. 2023 PBOC and Philadelphia Federal Reserve President Harker stated that the Fed may have completed the rate hike cycle, given the continued weakening of inflationary pressures.
In addition, the decline in nominal interest rates combined with the balanced inflation rate of profit and loss has weakened real interest rates, thereby strengthening gold. Safe-haven sentiment also supports the rebound of the US dollar.
Yide Futures also stated that considering the unpredictable development of the situation, the volatility of precious metal prices will significantly increase. Currently, the overall geopolitical crisis is still fermenting, and it is expected that gold and silver will continue to be strong in the pre-stalemate phase. The strategy suggests holding the position for now and locking in some profits if it surges significantly above $2,000, while speculative traders should wait for buying opportunities after a correction.
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