Recently, the price of gold has rebounded rapidly after falling during the National Day holiday. In the night session yesterday, the main contract of gold on the Shanghai Futures Exchange soared 1.42% and reached a high of 2.60% at the end of the night session. As of 9:40 am today, the main contract has fallen slightly, but still has a 2.04% increase.
The escalation of the conflict between Israel and Palestine is the main reason for the sharp rise in gold prices. Tom di Galoma, managing director and global co-head of interest rate trading at BTIG, said, “Today is a safe-haven day…investors will basically buy safe assets.”
During the National Day holiday, the decline in gold futures prices led to a decrease in the flow of physical gold and gold jewelry. However, according to a report by the World Gold Council, gold jewelry is still the absolute main force 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 is diamond-studded jewelry, accounting for 17% of the inventory, a decrease from 2021. In addition, due to its increasing popularity, hard gold jewelry also occupies an important position in the inventory of retailers, reaching 23%.
Although many institutions still have a long-term positive view on gold prices, the rapid fluctuation of gold prices in the short term has caused worries for consumers and investors. The fluctuation means increased uncertainty for manufacturers’ profits and brings great hesitation and panic to consumers’ purchases, which is not conducive to market stability and also affects the sales of gold products.
Looking to the future of gold futures trading, One Way Futures analysis indicates that although the “deadline for civilian evacuation” agreed by Israel has passed, the Israeli military has not yet entered Gaza. However, there are indications that the Israeli military will still carry out a ground offensive in Gaza, which will further intensify regional conflicts. According to Hark, the 2023 FOMC member and Chairman of the Philadelphia Federal Reserve, the Fed may have completed the rate hike cycle in a situation where inflation pressures continue to weaken.
In addition, the decline in nominal interest rates combined with a balanced breakeven inflation rate has weakened real interest rates and strengthened gold. Safe-haven sentiment also supports the rebound of the US dollar.
Considering the unpredictable development of the situation, the fluctuations in the prices of precious metals will significantly increase. Currently, the overall geopolitical crisis is still fermenting, and it is expected that gold and silver will continue to be strong. The strategy suggests holding positions for now and locking in some profits if prices significantly rise above $2000. For speculative trading, it is advised to wait for buying opportunities after a pullback.
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