Recently, the price of gold has rebounded rapidly after a fall during the National Day holiday. During yesterday’s night session, the main contract of gold on the Shanghai Futures Exchange (SHFE) jumped 1.42% and rose as high as 2.60% at the close of the night session. During today’s morning session, as of 9:40 am, the main contract has experienced a slight pullback but still has a 2.04% increase.
Previous reports from Caixin showed that the escalation of the Israeli-Palestinian conflict is the main reason for the surge in gold prices. Tom di Galoma, managing director and global head of fixed income at BTIG, stated, “Today is a safe-haven day…investors will essentially buy safe assets.”
In the early hours of last Friday, the Israeli Defense Forces notified the United Nations that all Palestinians in the northern Gaza Strip should move to the southern area within 24 hours. Shortly before the article was published, China Central Television News reported that the Israeli Defense Forces announced that they were carrying out “extensive” airstrikes on multiple Hamas targets in the Gaza Strip.
Liu Siyuan, chief analyst of Lingxiu Finance, stated to the media that the price of gold is mainly influenced by the economic policies of major global economies, physical demand for gold, and international geopolitical factors. These three factors have been alternately affecting the price of gold recently, causing a “V-shaped” reversal.
Gold jewelry remains the main consumer product for jewelers
During the National Day holiday, the decline in gold futures prices led to a reduction in the flow of gold spot and gold jewelry customers.
However, the World Gold Council recently released the “Insight into China’s Gold Jewelry Retail Market by 2023” report, which pointed out that gold jewelry remains the absolute main product 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 second highest product is diamond-set jewelry, accounting for 17% of the inventory of retailers, which has decreased compared to 2021. In addition, due to its increasing popularity, gold alloy jewelry also occupies an important position in the inventory of retailers, reaching 23%.
The association also stated that although most people believe that the gold jewelry market in their region has reached or even exceeded saturation, there are still people who believe that opportunities still exist. These optimists are mostly from fiercely competitive first-tier cities. According to the survey results, 73% of respondents believe that the number of gold jewelry retail stores in their cities is sufficient or even excessive, while 27% of respondents believe that there is still room for expansion.
Fluctuations in gold prices may affect consumer purchases
Although many institutions still have a long-term positive outlook on gold prices, the short-term rapid fluctuations in gold prices still cause concerns for consumers and investors.
Zhang Yi, chief analyst of iMedia Consulting, stated to Caixin reporters that the continuous rise in the price of gold in recent years is closely related to the safe-haven mentality of global consumers and investors. The rapidly fluctuating gold prices are a severe test for manufacturers, as it means that the uncertainty of profit acquisition for manufacturers is increasing. It also brings great hesitation and panic to consumers in terms of purchase decisions, which is not conducive to market stability and may also affect the sales of gold products.
Looking ahead to gold futures operations, Yide Futures analysis expressed that although the “deadline for civilian evacuation” set by Israel has passed, the Israeli military has not yet entered Gaza. However, various signs indicate that the Israeli military will still carry out ground offensives in Gaza, which will further intensify regional conflicts. Christopher Waller, a 2023 FOMC voter and president of the Federal Reserve Bank of Philadelphia, stated that the Federal Reserve may have completed the interest rate hike cycle in a situation where inflation pressures continue to weaken.
In addition, the decline in nominal interest rates combined with a balanced profit-loss breakeven inflation rate has weakened real interest rates, which has made gold strong. The safe-haven sentiment is also supporting 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. The current geopolitical crisis is still fermenting overall, and it is expected that gold and silver will continue to remain strong before entering a standoff. In terms of strategy, it is recommended to hold positions for now, and if there is a sharp rise above $2000, some profits can be locked in. For speculative trading, it is recommended to wait for buying opportunities after a correction.
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