US dollar falls too much, gold can’t resist inflation

Gold futures fell sharply on Friday, ending five consecutive days of settlement records as investors struggled with the strengthening dollar and the monthly report of the U.S. job market falling in line with expectations. At the same time, the $2100 / oz level has too much resistance to go higher. Spot gold fell sharply after hitting a record high of US $2075.15/oz and is now at US $2025.8/oz. Spot silver also fell 3.7% to $27.79/oz. Although the price of gold has fallen nearly 2%, the biggest drop since June, it is still up more than 33% this year, and is expected to achieve its biggest annual increase in 40 years.

as the US employment data was better than expected, indicating that the economic rebound is still making progress, the stronger US dollar has restrained the attraction of gold as a safe haven. Friday’s data showed that employment increased by 1.76 million in July, exceeding the expected 1.48 million, while the unemployment rate fell more than expected. The dollar has risen for four consecutive trading days at a time when differences between China and the United States are growing. Phil streibe, chief market strategist for Chicago blue line futures, said the two factors together put pressure on gold prices, especially the rebound in the dollar. “The strength of the dollar this morning will put pressure on the price of gold, which is the negative factor why the price of gold is faltering,” he said by telephone

analysts from the National Bank of Canada also believe that the continued decline of the US dollar has been excessive. Considering the extremely strong inverse correlation between the stock market and the US dollar index, they believe that the return of risk aversion will push the dollar higher. “In our view, the bearish outlook on the dollar is overdone,” they wrote in the report. At present, the inverse correlation between the stock market and the US dollar index is extremely strong. A return to risk aversion in the stock market is more likely to push up the dollar, not lower it. Novel coronavirus pneumonia is a new financial stimulus. First, what is the purpose of the repatriation of the risk capital back to the US dollar? First, we should have a reason to doubt the effectiveness of the new US fiscal stimulus in the case of the new crown pneumonia case that rekindle may affect employment growth and labor income. Second, we worry that high unemployment will revive protectionist tendencies in Washington on the eve of the presidential election. ”

once again, Europe’s largest economy is firmly established, which may also put pressure on gold and silver. German industrial output rose slightly more than expected in June, after data released on Thursday showed factory demand in Germany was 90.7% of the record level at the end of last year. However, Philip lane, the ECB’s chief economist, warned against premature optimism, saying the region’s third quarter results would be key to determining the strength and sustainability of the recovery.

and according to research recently published by Campbell Harvey, a professor of finance at Duke University, Claude Erb, a former commodity portfolio manager at TCw group, and Tadas viskata, founder and editor of the investment blog, gold is now overvalued.

as the spot gold price continues to climb, breaking through the $2000 / oz mark, the market’s enthusiasm for gold has reached a frenzy. But the new study focuses on the basic value of gold, which is very similar to the way Wall Street analysts calculate the fair value of stocks. The most frequently cited reason for the rise in gold prices is inflation. In fact, this basic principle is repeated so often, but few people stop to let it be examined by history. The study found that there was no statistically necessary link between gold and inflation.

in fact, researchers report that a more powerful indicator of gold’s future performance is the current price of gold adjusted for inflation: when inflation adjusted prices are high, gold tends to perform lower subsequently, and vice versa. An inevitable result of this finding is that the inflation adjusted gold price is as volatile as the nominal price. If gold is really a good inflation hedging tool, the inflation adjusted gold price will be relatively stable. On the contrary, it can be seen from the chart below that the inflation adjusted gold price has fluctuated as much as the nominal price over the past 50 years.

the impact on investment is that gold prices may be lower than current levels in the next few years. Gold bulls will object that the new study did not take into account the monetary overrun by the Federal Reserve in March, which is unprecedented in history. In their paper, the researchers refuted this point. Previously, investors held similar views in 1980 and 2011, and the price of gold reached an all-time high as it is now: “in 1980, some people worried about high inflation But from January 1980 to January 1985, the real price of gold fell by 65%. In 2011, there were concerns that the Fed’s quantitative easing policy would lead to high inflation. From August 2011 to August 2016, the real price of gold fell by about 33%. At present, some people worry that the fiscal and monetary policies implemented by the United States in response to the impact of the epidemic on the economy will bring about inflation effect. If gold did not cause people to worry about inflation in 1980 and 2011, why can it still cause people to worry about inflation now? ”

another possible explanation for the recent strength of gold analyzed by researchers is that the largest gold ETF has poured into a large number of assets. IShares gold trust, which manages $83.5 billion in assets, manages $32.6 billion. According to the preliminary data recently compiled by Bloomberg, the total holding of ETFs supported by gold is currently 3356.6 tons, which is more than that of any government except the United States.

in recent years, there is an impressive strong correlation between ETF gold holdings and real gold prices. However, the researchers are quick to point out that it is not clear what the causal relationship may be. For example, a higher gold price could “cause” new cash flows into gold backed ETFs. If that’s the case, then it’s very likely that if the price of gold falls, then assets will flow out of the ETF quickly, which may exacerbate the fall in gold.

in the short term, Christopher Lewis, an analyst at fxempire, believes that gold is slightly weak after a parabolic rise, and there will be a significant correction, which may be as deep as $1800 / oz. It may be impulsive to chase trading at this level, at least to see the gold market fall back to $2000 an ounce. However, David Becker said that gold prices began to fall after hitting a record high in the session, forming an outsourcing daily line that is considered to be a reversal. The lowest price of outsourcing daily line is lower than the lowest price of the previous trading day, and its highest price is higher than the highest price of the previous trading day. Support is near the 10 day moving average of $1992 / oz. Short term momentum has turned negative as the fast stochastic index generates a cross sell signal. In the medium term, kinetic energy is negative or neutral because MACD (exponential smooth moving average) histogram is red and flattened. Constellation

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