Against the background of the breakdown of the dollar credit system, central banks of various countries have the need to optimize their foreign exchange structures to enhance financial autonomy. The pace of increasing reserves during the gold price correction is expected to accelerate, forming strong bottom support for the gold price.
According to the Zhidao Finance APP, Fangzheng Securities released a research report stating that the gold price correction does not change the long-term bullish logic, focusing on opportunities for gold on the left side. The retracement of the gold price is mainly due to the U.S. election event/expectations and short-term economic data catalysis. The current gold price may have partially or fully reflected the corresponding marginal changes, and the bottom range has now appeared; at the same time, the fundamental logic supporting the continued upward movement of the gold price still holds. Therefore, considering that current disruptive factors may have been fully injected into expectations, the gold price is expected to complete the bearish expectations with the exhaustion of events + sentiment for a bottom rebound. In addition, the Fed's interest rate cuts + the gold price logic during the U.S. economic recession cycle are expected to continue to catalyze, and the increase in reserves by central banks under the "de-dollarization" scenario is expected to provide strong bottom support for the gold price, maintaining a "recommended" rating for the gold industry.
The main points of Zheng Securities are as follows:
Under the influence of multiple factors, the short-term pressure on the gold price is expected to manifest in the bottom range.
According to Wind data, as of November 15th, COMEX gold closed at $2567.4 per ounce, down 8.4% from the recent high ($2801.8 per ounce), marking the largest retracement so far this year. The bank's comprehensive analysis of the macro market policies and major economic data concluded the following main factors affecting this round of gold retracement:
1) Rising inflation: On November 13th, the U.S. Department of Labor disclosed that the CPI rose by 2.6% year-on-year in October, up 0.2 percentage points from the previous month, the first rebound since April. The gold price retracement reflects the market's concerns about high inflation stickiness, compounded by further intensification due to Trump's reelection (second inflation risk), ultimately leading to concerns about the Fed's slowing pace of interest rate cuts due to inflation trends.
2) Improving employment: On November 14th, the U.S. Department of Labor disclosed that the initial jobless claims in the U.S. reached 0.217 million people as of last week, lower than the previous 0.221 million and the expected 0.223 million. The data reflects recent improvements in the labor market and strengthens confidence in the resilience of the U.S. economy, weakening the logic of "recession trades" for gold.
After President Trump's victory in the election on November 6th, the US dollar index quickly rose to 106.68 points under the influence of the "Trump 2.0" trade, with an accumulated increase of 3.2%. The price of gold came under pressure due to Trump's America First policy (strong dollar) impact.
Risk aversion sentiment cooled down: Trump promised during his campaign to quickly end the Russia-Ukraine conflict after taking office, and reiterated on November 14th that conflicts in the Middle East and Russia-Ukraine must be stopped. The pullback in gold prices reflects a reduced uncertainty in the election and geopolitical conflicts, weakening the logic of gold as a "safe-haven trade".
The retreat in gold prices is mainly caused by the US election events/expectations and the catalysis of short-term economic data, and the current gold price may already partially or fully reflect corresponding marginal changes, with a bottom range now emerging.
The logic for gold price increase remains unchanged, with the dual main themes of "recession trade" and "rate cut trade" expected to continue catalyzing the upward trend.
Multiple indicators suggest that the US economy may enter a downturn cycle, providing a foundation for gold price increase under the backdrop of economic downturn. Based on the fundamentals of the US economy, the GDP quarter-to-quarter annualized rate in the third quarter recorded 2.8%, a decrease of 0.2 percentage points from the previous value; the October ISM manufacturing PMI recorded 46.5, a decrease of 0.7 points from the previous value and has been below the boom-bust line for 7 consecutive months; the unemployment rate recorded 4.1%, staying above the 4% mark for 6 consecutive months. Several economic data imply early signs of a recession in the US economy, and gold, as a typical safe-haven asset, has a solid foundation for continued upward trend driven by the "recession trade".
The current round of Federal Reserve rate cuts is expected to continue, with gold having upward momentum during the rate cut cycle. On November 7th, the FOMC decision reduced the federal funds target range by 25 basis points to [4.5, 4.75]%, marking the second consecutive rate cut in this round, following September's rate cut. Additionally, the September dot plot suggests that there may still be 125/175 basis points of further rate cuts through the end of 2025/2026. Taking into account the Federal Reserve's dual mandate of "controlling inflation and achieving full employment" and the trend of US economic data so far this year, the current rate cut is expected to continue, providing strong upward momentum for gold during the rate cut cycle.
The trend of "de-dollarization" continues, with global central banks increasing gold reserves to provide strong bottom support for gold prices.
"De-dollarization" enhances the monetary attributes of gold, and central banks continue to increase reserves to provide bottom support for gold prices. According to data from the World Gold Council, global central banks have bought more than 1000 tons of gold each year from 2022 to 2023, with the proportion of gold in foreign exchange reserves rapidly increasing from 13.3% at the beginning of 2022 to 17.8%. Against the backdrop of the disintegration of the US dollar credit system, central banks of various countries have a demand to optimize their foreign exchange structures to enhance financial autonomy. The pace of gold accumulation is expected to accelerate during the price pullback, forming strong bottom support for gold prices.
The gold price's pullback does not change the long-term bullish logic, focusing on opportunities on the left side of the gold.
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Risk Warning: Risk of unexpected Federal Reserve monetary policy, geopolitical conflict risk, and risk of better-than-expected US economic data.
