Recently, the price of gold has rebounded rapidly after falling during the National Day holiday. The main contract for gold on the Shanghai Futures Exchange opened 1.42% higher in the night session and reached a high of 2.60% by the end of the session. During the morning session today, as of 9:40 am, the main contract has fallen back slightly but still has a 2.04% increase.
The recent escalation of the Israel-Palestine conflict is the main reason for the surge in gold prices, according to BTIG Managing Director and Head of Global Interest Rate Trading, Tom di Galoma. He states that “today is a safe-haven day… investors will basically 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 Gaza Strip within 24 hours. Shortly before this article was released, China Central Television (CCTV) reported that the Israeli Defense Forces announced “wide-ranging” airstrikes on multiple Hamas targets in the Gaza Strip.
Liu Siyuan, Chief Analyst at Lingxiu Finance, stated that the price of gold is mainly influenced by the economic policies of major global economies, demand for physical gold, and international geopolitical issues. These three factors have alternately affected the price of gold, resulting in a “V-shaped” reversal.
Although the flow of customers for gold bullion and jewelry decreased during the National Day holiday due to the decline in gold futures prices, a recent report by the World Gold Council indicates that gold jewelry is still the absolute mainstay of Chinese jewelry retailers’ inventory.
The report shows that as of the first half of 2023, gold jewelry accounted for 67% of jewelry retailers’ inventory, a significant increase from 52% in 2021. Diamond-studded jewelry ranked second, accounting for 17% of retailers’ inventory, slightly lower than in 2021. In addition, due to its increasing popularity, hard gold jewelry has also occupied an important position in retailers’ inventory, reaching 23%.
The association also stated that although most people believe that the gold jewelry market in their region has reached saturation or over-saturation, some still believe that opportunities exist, especially in fiercely competitive first-tier cities. According to 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 fluctuations in the price of gold have caused concerns for consumers and investors, despite many institutions still being optimistic about the long-term outlook for gold. The fluctuation of gold prices brings uncertainties to manufacturers in terms of profit acquisition and creates a sense of caution and panic among consumers, which is not conducive to market stability and can also affect the sales of gold products.
Looking at the future operation of gold futures, Yide Futures analysis suggests that although the deadline for the “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 launch a ground offensive in Gaza, further intensifying regional conflicts. Charles Hakk, member of the 2023 voting committee and president of the Federal Reserve Bank of Philadelphia, stated that the Federal Reserve may have completed the interest rate hike cycle in a scenario where inflationary pressure continues to weaken.
Furthermore, the decline in nominal interest rates combined with a balanced breakeven inflation rate weakens real interest rates, which strengthens gold. Safe-haven sentiment also supports the rebound of the US dollar.
Considering the unpredictable development of the situation, the volatility of precious metal prices will significantly increase. Currently, the geopolitical crisis is still in the fermentation stage, and it is expected that gold and silver will maintain their strength in the confrontation phase. The recommended strategy is to hold positions temporarily and lock in some profits if the price rises significantly above $2000. For speculative trading, it is recommended to wait for buying opportunities after a pullback.
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