The strong situation of the US dollar will ease somewhat, and the decline of gold will narrow

Text of research report

[Data Map]

Market News

1. Federal Reserve Governor Waller said that recent data did not show that the Federal Reserve needs to take any action immediately, and more data is needed to show that the Federal Reserve has ended interest rate hikes. Until inflation falls, the Federal Reserve will have to keep interest rates high.

2. The trade unions of General Motors, Ford and Stellantis, the three largest automobile enterprises in the United States, have voted to approve. If these companies cannot reach an agreement on new labor contracts before September 14, including a 40% salary increase and the implementation of the four day work day system, a large-scale strike may begin.

The UAW of the National Automobile Workers' Federation requires GM, Ford and Stellantis to raise wages by 40% or more, reduce working hours to 32 hours, etc. These requirements will increase the labor costs of the "three giants" by more than 80 billion dollars.

The "Big Three" said that this would lead to unemployment of workers and threatened to transfer their factories to Mexico, but considering their huge profits in the first half of this year, UAW did not shrink back and use strike funds to support members' strike (on the eighth day after the strike, each employee can get 500 dollars a week, which is twice as long as last year, and the longest support for the strike lasts for 11 weeks). At the same time, it used re-election to pressure President Biden.

[Market performance]

COMEX gold closed at US $1941.8 per ounce (- 0.55%), Shanghai Gold at RMB 464.24 per gram (- 0.02%), and gold T+D at RMB 464.05 per gram (- 0.16%).

Overall Analysis

As the most radical interest rate hiker of the Federal Reserve, the moderation of Waller's wording is suggesting that interest rate hikes may not be needed in the future. However, in the short term, the risk of auto workers' strike will rise. Under the background of low inventory and weak supply chain of automobiles, the price of automobiles may rise to increase the stickiness of inflation. It is expected that the two sides will reach some agreements on September 14.

At present, inflation trend, monetary policy and economic prospects are the key factors affecting the market trend. In terms of employment, the number of job vacancies in the United States has accelerated to fall, but the overall level is high. The number of new non farm workers has slowed down in an orderly manner, but the unemployment rate is low and the wage growth is strong, indicating that the labor market is hot and needs further cooling.

In terms of price, the rise of oil price hub, the impasse in the auto trade union negotiations triggered strike concerns, and the recovery of consumption in some industries, such as commodities, may increase the stickiness of inflation and enhance the expectation of a soft landing of the economy.

In terms of investment, the recovery of manufacturing investment and the continuous stimulus of the government's fiscal bill offset the negative impact of high interest rates on the economy, increased the expectation of soft landing, extended the time of the central bank's high interest rate policy, and postponed the expectation of interest rate reduction. In the future, we need to pay attention to whether core inflation and employment can cool down as scheduled, and the policy interest rate is facing greater upward risk.

In the short term, gold faces some downward pressure. Based on the following three points:

1) The upward risk of inflation has increased, the expectation of the Federal Reserve raising interest rates/higher interest rates for a longer time has risen, and the yield of US dollars and US bonds has strong support;

2) In the future, the demand for government bonds will be strong, the supply of US bonds will rise, the yield will rise, and the price of bonds held will fall, which will trigger investors to sell and push up the yield;

3) The US economy is on the strong side, the expectation of soft landing is heating up, the euro zone economy is deteriorating, and the US dollar's risk aversion is strengthening. However, considering the cooling trend of the labor market and the decline of the stability of the dollar credit, the decline of gold is limited.

[Short term risk point]

1) The relatively large devaluation of currencies in Africa and the United States is likely to trigger central bank intervention in the market, the strong situation of the US dollar will be eased, and the decline of gold will narrow.

2) The labor supply is inelastic, the wage inflation is sticky, the Federal Reserve releases its hawks more than expected, and the US bond yield continues to rise, suppressing the performance of gold. In general, gold is facing some adjustment, but there is limited room for decline.

In the medium term, the expectation of soft landing has been strengthened, pushing the Federal Reserve to maintain its high interest rate policy for a longer time, and the effect of restraining the economy has gradually emerged with the higher real interest rates. The rising risk of bank credit contraction has triggered risk aversion and interest rate reduction expectations to some extent. Gold may play a game of interest rate reduction expectations early next year, and the market is expected to reverse.

In terms of funds, the valuation after gold price adjustment is relatively low, which will attract more capital; In the medium and long term, the inflation center is facing a rising dollar credit and currency crisis caused by anti globalization and deteriorating US fiscal situation. Central banks' demand for diversified allocation is rising, selling dollars to increase their holdings of gold, supporting the rise of gold prices.

Risk Tips

The financial system is highly sensitive, geopolitical conflicts exceed expectations, and risk aversion fluctuates significantly.

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