Recently, positive signals have been released from the negotiations between the United States and Iran, international oil prices have dropped significantly, and market concerns about rising inflation have cooled. Affected by this, the probability of the Federal Reserve raising interest rates in September has decreased, and the US dollar index and US bond yields have weakened simultaneously, further easing the valuation pressure on precious metals. Last week, the price of the main contract of Shanghai Gold continued to rise. This round of rise is mainly driven by news factors. Geopolitical situations and tariff policies may still fluctuate, and the sustainability of the subsequent rise remains to be observed.
Frictions within the Federal Reserve are growing
The global monetary policy has undergone a clear shift. The global expectation of interest rate cuts at the beginning of the year was dashed by the continuously rebounding inflation data. The policies of the world”s major central banks have shifted from “leaning toward easing” to “leaning hawkish and on the sidelines”, and even resumed interest rate hikes. On July 29st, the Federal Reserve announced to continue keeping the federal funds rate unchanged in the range of 3.5% to 3.75%. In the 12-vote decision on the interest rate, 9 Fed officials voted in favor, while another 3 officials voted against, advocating a 25-basis-point interest rate hike.
Since taking office as Fed Chair in May, Walsh has repeatedly stated his commitment to fighting inflation but has consistently refused to provide forward guidance on the Fed’s next policy path. Adhering to a more hawkish stance, Walsh said the Fed would not hesitate to take action if the conditions are necessary and appropriate.
Looking ahead, although the probability of the Federal Reserve launching preventive interest rate hikes has increased, the base case is to keep interest rates unchanged in the second half of the year, and there is a high chance that rate hike expectations will be continuously pushed back. However, constrained by energy and service inflation, rate hike expectations are also difficult to be significantly revised downward. Considering that the labor market may cool down, coupled with falling oil prices, the fading impact of tariffs, and the low growth rates of housing and wages, all of which will help suppress inflation. Therefore, the Federal Reserve will keep interest rates unchanged before September. The base case is no rate hike in the second half of the year, and a total of two rate hikes may be implemented by the end of next year.
Recently, affected by the joint intervention in the foreign exchange market by the United States and Japan, the US dollar and the Japanese yen reversed their previous trends, and the US dollar index experienced a sharp adjustment. Although the intervention is a short-term behavior, it may still block the upward trend of the US dollar index in stages and weaken its suppression on the prices of gold and silver. It should be noted that with the continuous emergence of the negative impact of high oil prices on the economy, the US dollar index is expected to still have a strong upward momentum, and the overall market will present a range-bound pattern in the later period.
The U.S. economy remains resilient
The U.S. economy still shows strong resilience. In the second quarter, the initial estimate of the annualized quarter-on-quarter growth rate of U.S. GDP was 1.5%, lower than the market expectation of 1.8%. The growth rate further slowed compared with 2.1% in the first quarter, but this does not indicate that the U.S. economy has fallen into a slump.
From the perspective of the U.S. economic structure, consumption and investment demand remain strong, supporting the economy’s resilience. U.S. consumption grew by a strong 3.2% quarter-on-quarter in the second quarter, a significant improvement from the 0.5% growth in the first quarter. Business investment rose by 8.4% quarter-on-quarter, which, although down from the 10.6% in the first quarter, still remained at a high level. In the second quarter, final sales to domestic private purchasers in the United States increased by 3.9% quarter-on-quarter, doubling from the 1.7% in the first quarter, indicating that U.S. domestic demand remained strong in the second quarter. The main factor dragging down U.S. GDP in the second quarter was a sharp surge in imports, with the growth rate far outpacing that of exports. Imports rose by 11.5% quarter-on-quarter in the second quarter, while exports grew by only 4.5%, and net exports contributed a negative 1.01 percentage points to Q2 GDP.
After artificial intelligence (AI) investment took the lead in driving growth in the first quarter, consumer spending became the main growth engine in the second quarter, with performance far exceeding expectations, further highlighting the resilience of the U.S. economy.
Geopolitical situation fluctuates
The previously escalating tensions between the United States, Israel and Iran have taken a dramatic turn. On August 1st, U.S. President Donald Trump posted on social media that Iran and other Middle Eastern countries had requested the U.S. to postpone launching attacks, and he agreed to call off military strikes based on this request. On August 2nd local time, Iranian Foreign Minister Amir-Abdollahian claimed that negotiations between Iran and its neighboring country Oman over the Strait of Hormuz had entered the “final stage”. According to Iran’s Islamic Republic News Agency (IRNA), Amir-Abdollahian reported the latest progress of the talks with Oman to the Iranian cabinet, stating that the negotiations were “close to completion”.
At present, the situation in the Middle East has temporarily eased, but the risk of energy supply remains the focus of market attention. If diplomatic efforts fail to yield results, such risks may once again become an important factor driving up oil prices.
Overall, the geopolitical situation in the Middle East is easing, expectations of an inflation rebound are cooling, and the negative impact of the macro landscape is weakening. Gold prices may fluctuate on the strong side in the short term, but the possibility of repeated geopolitical tensions still needs to be guarded against. In the medium to long term, against the backdrop of the accelerating restructuring of the international geopolitical order and the high level of US debt, the de-dollarization trend is continuing to advance, and global central banks’ gold purchase demand remains at a high level. Gold prices still have upward momentum.
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