In 2021, the price of precious metals fluctuated and fell. Among them, international spot gold fell by about 5% and spot silver fell by about 12.7%. Global inflation, repeated epidemics and the shift of monetary policies of major central banks to tightening jointly dominate the fluctuations in the precious metal market in 2021.
Daily trend of Shanghai Gold main contract in 2021
Source: Xinhua financial professional terminal
Daily trend of main contract of Bank of Shanghai in 2021
Source: Xinhua financial professional terminal
both rise and fall
The "long inflation" transaction once reversed the decline of precious metals in the second quarter. Under the unprecedented ultra loose policy of the Federal Reserve, the global central bank hedged the impact of the covid-19 epidemic and protected the global economic recovery by injecting a large amount of liquidity into the real economy. Statistics show that the total assets of the five major central banks (the Federal Reserve, the European Central Bank, the Bank of Japan, the people's Bank of China and the Bank of England) increased from US $20.4 billion in February 2020 to US $32.5 billion, with an average annual growth rate of 32% in two years. Among them, the M2 money supply of the United States has increased at an annualized rate of 20.2% for two consecutive years. At present, it has exceeded 90% of GDP, which was still at the level of 44.4% at the beginning of this century.
In the second quarter, a series of commodities such as crude oil, metals and steel rose together, inflation data rose further, and precious metal prices began to rise. From March 31 to June 1, the international gold price once rose more than $200 / ounce, and the silver price once approached the $29 / ounce mark.
However, inflation is a "double-edged sword" for precious metals. While increasing the demand for value preservation, it also increases the pressure for further tightening of monetary policy by global central banks. Especially before and after the Federal Reserve's interest rate meeting in June, the market's expectation of the shift of monetary policy was officially implemented. Federal Reserve officials gave up the statement that inflation was "temporary". Speculation about the number of interest rate increases in 2022 also gradually began, and precious metal prices began to fall.
Looking forward to 2022, the agency believes that inflation is still an important factor determining the trend of precious metals. However, under the background of normalization of monetary policy, high inflation is difficult to attract hedge buying of precious metals, and the slowdown of inflation will further increase the downward pressure on precious metals.
the epidemic is still spreading, but the demand for risk avoidance is declining
At the beginning of this year, with the market's expectation of economic recovery rising, the market risk aversion fell, the US bond yield and the US dollar index rose, and the gold price fluctuated and fell by more than 10% in three months. Although the silver price briefly rose under the influence of the "retail investors holding together" event, it also fell by about 20% from its high level.
9. In October, when the delta mutant virus was raging in many countries, the market risk aversion was rekindled, and the US dollar, US debt and precious metals rose together. From the market performance, on September 30, the international precious metal price rose sharply from the low point of the year. In the following one and a half months as of mid November, the international spot gold price and silver price rose by 9% and 19% respectively.
However, looking back on the whole year, the performance of the hedging attribute of precious metals is far less than in the past: on the one hand, although most central banks around the world pointed out that cryptocurrency will not replace gold as a hedging asset, cryptocurrency still diverted hedging funds to a certain extent. On the other hand, under the background of continuous speculation in the market about the expectations of the Federal Reserve taper, the attractiveness of the US dollar and US bonds as safe haven assets is also stronger than that of precious metals.
In 2021, although the inflation index of many countries in the world rose and the epidemic situation was frequently disturbed, the global precious metal ETF positions showed a net outflow. According to the data of the World Gold Council, in November 2021, the net inflow of global gold ETFs was 13.6 tons (about US $838 million, and the Aum of asset management scale increased by 0.4%), which was the first monthly net inflow since July. However, from the beginning of the year to November, the global gold ETF still flowed out about 167 tons (about US $8.8 billion). From the change of positions of SPDR and iShares silver trust, as of December 27, the positions of the two major ETFs decreased by 16.77% and 3.76% respectively compared with the end of 2020.
The figure shows the ETF positions of gold and silver. Data source: choice data
Looking forward to 2022, the agency believes that with the improvement of global vaccination rate, the disturbance to the market caused by the epidemic situation is gradually weakened, and the impact of risk aversion factors on precious metals may retreat to the second place.
the liquidity tightening cycle starts the trend of precious metals and pays more attention to the change of interest rate
Looking back on the current round of precious metal price rise since 2019, although the rise of silver price is partly affected by the increase of new energy demand, it still follows the trend of gold for most of the time. Generally speaking, the rise and fall of precious metal prices are inversely proportional to the level of real interest rates. During the decline of gold and silver prices at the beginning of the year, this relationship was undoubtedly revealed: while the yields of US dollars and US bonds rose, the price of gold and silver fluctuated downward. In June, with the market's expectation of the Fed taper rising, the price of gold and silver started the second round of decline in the year, and the price of silver came out of a main decline under the drag of industrial attributes.
When the tightening cycle starts, the price of precious metals will be under overall pressure, which is the consensus of investors. The change of the real interest rate level and the judgment of the Fed's interest rate increase rhythm have become the main factors affecting the price fluctuation of precious metals.
In its annual report, ITC futures pointed out that looking forward to 2022, the global liquidity inflection point has emerged, and the Federal Reserve may start raising interest rates in mid-2022. In the context of the opening of the liquidity tightening cycle, it is expected that the interest rate drive will re dominate the trend of precious metal prices in 2022: precious metal prices are expected to be under pressure until the Federal Reserve's interest rate hike boots fall; However, after the interest rate hike boots landed, referring to historical experience, gold prices may have staged rebound opportunities. The dollar index will still be the secondary key variable affecting the price trend of precious metals. There is still room for the US dollar index to rise in 2022, which will continue to suppress the price of precious metals.
Galaxy futures believes that it is almost certain that the Fed will enter the interest rate increase cycle next year, and the top of precious metals will always be under pressure. However, the intensity of interest rate increase will dominate the fluctuation range of precious metals, especially the change of the Fed's attitude has a great impact on the market. The game between inflation and nominal interest rate expectation will dominate the rise and fall of real interest rate. Under the game between inflation and the expectation of interest rate increase, when the real interest rate returns to the era of positive interest rate, the time for the downward trend of precious metals will come.
According to CITIC futures, in the first half of 2022, inflation is expected to remain high and the momentum of global economic recovery will weaken. As the Phillips curve is still valid and there is a gap in employment, the Fed will tolerate high inflation, and there may be a structural upward trend in precious metals. Near June, prices are expected to fall due to the uncertainty of raising interest rates. If inflation falls in June, the time point for raising interest rates will be delayed, but precious metals may be under pressure due to the promotion of the US infrastructure plan.
investment demand decreased but physical demand increased
In addition to the factors that directly or indirectly affect the market trend of precious metals, the fluctuation risk of precious metal prices in the past two years has also affected their investment behavior. In brief, these changes related to precious metal investment in 2021 are also noteworthy:
In the international market, the interest of central banks around the world in purchasing gold will stabilize again in 2021 after a precipitous decline in 2020. According to the data of the International Monetary Fund (IMF) (as of October due to time lag data), except for the 13 tons of net sales of global central banks in January, as of October, the demand of global central banks for gold purchase this year has completely exceeded the overall level in 2020.
At the same time, the global demand for physical funds is strong. According to the report of the World Gold Council, in the third quarter of this year, the total consumption of global gold jewelry increased by 33% year-on-year, and the global demand for gold bars and gold coins increased year-on-year for the fifth consecutive quarter.
In China, after many banks stopped opening new accounts for personal precious metal trading business at the end of 2020, many banks tightened their precious metal business in mid-2021. It is a general trend to strengthen the control of personal "over-the-counter" precious metal trading business.
At the same time, China's actual consumption demand for precious metals remains strong. According to the statistics of China National Gold Group Gold Jewellery Co.Ltd(600916) Association, the actual consumption of gold in the first three quarters of 2021 was 813.59 tons, an increase of 48.44% compared with the same period in 2020 and 5.89% compared with the same period in 2019 before the epidemic.
Looking ahead, the agency expects that although the investment demand for gold may continue to be affected by the tightening cycle, the physical demand may still maintain steady growth.
(Xinhua Finance)
