On July 7th, the updated official reserve assets by the State Administration of Foreign Exchange showed that China's official gold reserves in June 2024 remained unchanged at 72.8 million ounces, indicating that the People's Bank of China had paused gold purchases for two consecutive months. Overall, there has not been a significant decline in the investment force in the gold market recently. There are two main risks for gold: one is the Federal Reserve policy risk and the other is the failure of central bank gold purchases to meet expectations.
For commodities such as gold, the biggest factor that determines the price may be 'public opinion' rather than its fundamentals.
On June 2024, China's official gold reserves remained unchanged at 72.8 million ounces, the same as the previous month, according to the updated official reserve assets from the State Administration of Foreign Exchange. This shows that the People's Bank of China has suspended gold purchases for two consecutive months. However, judging from the recent international gold price trends, the momentum is still upward. Has the market barometer failed? How will the gold price go in the future?
After the People's Bank of China stopped buying gold, the gold price remained at a high level in the near term.
According to official data on June 7th, China's gold reserves at the end of May were 72.8 million ounces, the same as the previous month. Previously, the central bank had increased its gold reserves for 18 consecutive months, which means that the central bank's '18 consecutive gold increases' has been terminated. Data on July 7th showed that the central bank has stopped buying gold reserves for two consecutive months.
However, judging from the data of the past month, the overall 'crazy gold' has not ended. On June 7th, the spot gold fell by 1.00% during the day, and once reached $2,351.78 per ounce, hitting a new low in two days. However, the spot gold price resumed its upward momentum afterwards. On July 6th, spot gold touched $2,390 per ounce, hitting a new high since May 22nd. This also means that the price of spot gold has not been greatly affected in more than a month since the central bank suspended gold purchases.
In addition to spot prices, COMEX gold futures (New York gold) also maintained a shake-upward trend in June. At the close on July 6th, the COMEX gold futures rose 1.28% to $2,399.8 per ounce, one step away from the $2,400 mark. From the data perspective, the performance of spot gold and gold futures in June is still good, why did the barometer - the People's Bank of China's suspension of gold purchases - fail to affect the market?
On July 8th, Zheshang Securities' Shi Yi and Xiong Yuhang wrote that since the beginning of this year, the gold price has not shown a significant trend of correction, but instead has surged, so it is reasonable for the central bank to reduce or even suspend gold purchases and not chase the market. Regarding the continuing madness of the gold price, Zheshang Securities believes that since the second quarter of this year, multiple factors such as geopolitical conflicts, global central bank gold purchases, Fed interest rate expectations, and rising inflation expectations have kept gold prices high, and the support force below is strong.
Regarding this, a certain brokerage macro analyst also told Cailian Press reporters that overall, the investment force that has flowed into the gold market recently has not weakened significantly. The biggest factor that pushes up commodity prices is the consensus of investors and the influx of subsequent funds. Therefore, it is not surprising that gold remains strong recently.
Continue to be crazy or adjust? Some institutions hold a short-term shock view but are bullish on the future.
On July 8th, Dongzheng Futures' Xu Ying pointed out in a research report that China's central bank's unchanged gold reserves in June may cause certain suppression on the bullish sentiment in the market. From the perspective of investment advice, the short-term gold price oscillated at the bottom and has not yet escaped the consolidation pattern. From a medium to long-term fundamental perspective, it is bullish.
"From many current domestic and international factors, the buying power of the gold investment market in the short term is still relatively strong." The analyst mentioned above pointed out that there are still some bullish factors in the gold market, and there are no lack of favorable factors in the peripheral market. For example, according to foreign media reports, many foreign tourists including Chinese tourists have recently flocked to the Japanese market to buy gold and jewelry. At the same time, some countries such as India have been continuously buying gold reserves this year, with the main purpose of hedging the negative impact of the depreciation of their currencies under the strong US dollar.
Cailian Press reporters found that on July 6th, data from the World Gold Council showed that the central bank's gold reserves in India last month may hit the largest increase in nearly two years. According to calculations based on weekly data from the Reserve Bank of India, the central bank added more than 9 tons of gold in June, the highest level since July 2022. At the same time, India's gold reserves have increased by 37 tons this year. In response to this, Zheshang Securities' Shi Yi and Xiong Yuhang also pointed out that asset de-dollarization is a long-term job, and gold is a good choice. If the Federal Reserve maintains its hawkish stance and suppresses overseas gold prices in the future, the People's Bank of China may replicate the decision from May to October last year and resume gold purchases.
So, what are the negative factors and risks in the gold market recently? In response to this, Dongzheng Futures' Xu Ying believes that the easing of geopolitical risks and the expected re-tightening of the market will cause gold to slump.
Analysts Shi Yi and Xiong Yuhang pointed out that there are two major risks for gold. One is the risk of Fed policy: If the Fed's rate hike policy exceeds expectations, it will affect the prices of various metals and lead to the risk of a downward trend in related metal prices. The second is that central bank gold purchases fall short of expectations: If the global central bank gold purchases are lower than expected, it will affect the demand for gold and cause the price of gold to be affected.
"The biggest risk of gold investment is still over-leveraged, especially in futures trading. If investors ignore the risk awareness, they are likely to lose all their capital and be out when there is a shakeout." The above analyst finally said.