Gold T+D closed down, the market bet the Fed to reduce bond purchases to put pressure on gold prices
On Friday (June 4), the Shanghai Gold Exchange gold T+D closed down 1.35% to 382.11 yuan/g; silver T+D closed down 2.81% to 5529 yuan/kg. The drop in gold prices was mainly because the market was betting that the Fed might be about to cut back its stimulus. Earlier, the small non-agricultural ADP announced by the United States was much better than expected. In addition, Dallas Federal Reserve Chairman Kaplan has once again called on the Fed to start discussing reducing its support to the economy as soon as possible. At present, market investors are paying close attention to the May non-agricultural employment report to be announced later.
On June 4, 2021, the Shanghai Gold Exchange had a trading market of 64.314 tons of gold on T+D;
Gold T+D closed down by 1.35% to 382.11 yuan/g, with a trading volume of 64.314 tons, with a turnover of 24,332,655,200 yuan. The settlement direction was “pay short for long”, and the settlement volume was 15.242 tons;
Mini gold T+D closed down 1.42% to 382.2 yuan/g, with a turnover of 17.0164 tons and a turnover of 6,439,797,440 yuan. The settlement direction was “pay over to short”, with a settlement volume of 49.556 tons;
Silver T+D closed down 2.81% to 5529 yuan/kg, with a trading volume of 836.69652 tons, with a trading volume of 46,369,216,470 yuan. The settlement direction was “pay over to short”, and the settlement volume was 207.630 tons.
“Small non-agricultural” puts heavy pressure on gold prices, the market pays close attention to Friday’s non-agricultural employment report
On June 3, local time, data released by the US government showed that the number of initial jobless claims in the United States fell for the fifth consecutive week. The number of initial claims for unemployment benefits from the United States to May 29 was 385,000, better than the expected 395,000, which was the lowest since the outbreak of the epidemic. The US May Markit service industry PMI recorded a final value of 70.4, and the ISM non-manufacturing PMI recorded a record of 64 in May, both setting record highs.
This is the lowest number of initial jobless claims that have attracted much attention from the market during the epidemic period since March 2020, that is, the lowest since the beginning of the outbreak in Europe and the United States, and it is also the first time in more than a year that it has fallen below 400,000.
The private sector employment of ADP, known as “small non-agricultural”, exceeded expectations in May, adding 978,000 people, an increase much higher than market expectations of 680,000, which was the fastest increase in the past year since June last year.
From the data point of view, the number of employment in the manufacturing industry has continued to grow, but the number of employment in the service industry increased sharply in May compared with April. The market believes that the strong employment data of “small non-agricultural” is mainly due to the epidemic and the improvement of economic conditions.
Stimulated by strong employment data, the U.S. dollar index rose sharply. The U.S. dollar index, which measures the U.S. dollar against six major currencies, rose 0.67% on the day. Commodities fell in response, while commodities such as gold and copper were suppressed by the strong US dollar and fell sharply.
The market is waiting for the US May non-agricultural report to be released later on Friday. The May non-agricultural report in the United States is scheduled to be released at 20:30 on Friday, Beijing time. Authoritative media surveys show that the non-agricultural employment population in the United States is expected to increase by 655,000 in May; the unemployment rate in the United States is expected to fall from 6.1% to 5.9% in May.
In addition, investors also pay close attention to salary data. The survey shows that the average monthly rate of hourly wages in the United States is expected to increase by 0.2% in May, after an increase of 0.7% in April; the average annual rate of hourly wages in the United States is expected to increase by 1.6% in May, which is higher than the 0.3% increase in the previous month.
Analysts pointed out that if the non-agricultural employment report is stronger than expected, it may further boost demand for the dollar, because this will increase the pressure on the Fed to tighten monetary policy. The strong non-agricultural report will also put more downward pressure on gold and silver prices.
The Federal Reserve announced plans to sell corporate bonds and increased expectations for reducing bond purchases, putting pressure on gold prices
After both the CPI and core PCE data exceeded market expectations in April, the Fed started to sell corporate bonds for the first time this week since the new crown pneumonia epidemic. Some analysts believe that the Fed’s reduction in debt purchases is a good sign and timely.
On Wednesday, the Federal Reserve announced that it will gradually and orderly sell off the corporate bond portfolio purchased through the “secondary market corporate credit facility” established during the epidemic last year. The Fed plans to deal with exchange-traded funds (ETFs) first, and then start selling corporate bonds in the summer, and plans to complete the selling process in 2021.
Subsequently, the New York Federal Reserve announced on Thursday that it would start to sell its 16 ETF portfolios next week, which is considered to be the first step to sell off the US$14 billion in corporate bonds it purchased during the epidemic. At present, the total amount of corporate bonds and related ETFs held by the Federal Reserve is approximately US$14 billion, accounting for approximately 0.1% of the US$10.6 trillion US corporate bond market.
However, so far, the market’s response to the Fed’s dumping of corporate bonds has been relatively flat. The iShares iBoxx U.S. dollar investment-grade corporate bond ETF fell only 0.4% on Thursday; the iShares iBoxx U.S. dollar high-yield corporate bond ETF fell only 0.2%, still above $87. In March last year, before the Federal Reserve launched its bond purchase program, it fell to US$70; SPDR Bloomberg Barclays High Yield Bond ETF also fell only 0.1%.
In addition, the spread between investment-grade and high-yield US corporate bonds (that is, the bond premium is higher than the risk-free benchmark) has not risen, and is still near a 20-year low.
Last year, after the Federal Reserve announced the SMCCF and primary market corporate credit facilities, investors’ confidence in the US corporate bond market quickly recovered, reducing the yield of junk bonds to the lowest in history. This allows companies with the lowest credit and the highest risk of default to finance the epidemic at the lowest cost in history.
Patrick Tadie, director of structured finance at Wilmington Trust, said that I think this gradual withdrawal from the bond purchase program is a good sign. This shows that the Fed believes that some temporary support measures provided (previously in response to the epidemic) may not be necessary, and private sector investors should be able to make up for the shortfall in the part of the corporate debt sold by the Fed.
Monica Erickson, head of investment-grade corporate debt at Shuangxian Capital, said that the scale of the announcement of the sale is so small that I don’t think it will have an impact on the market when the sale actually starts.
Some analysts even believe that the Fed’s plan to gradually withdraw from the corporate bond purchase plan is timely, especially since this plan has reached its original intention to control the wave of corporate defaults during the epidemic, and it is easy for the Fed to restart its bond purchase plan.
Nicholas Elfner, co-head of research at Breckinridge Capital Advisors, said that the Fed’s sudden introduction of the corporate bond purchase program shocked and awed the market. Now only some unconventional measures are withdrawn. What’s more, these measures are still in the Fed’s policy tools. The market’s general expectation is that if necessary, the Fed will interfere in the corporate bond market again.
The Fed’s easing discussions are gradually heating up, putting heavy pressure on gold prices
Recent data show that the US economy is recovering strongly, while inflation is also rising. The market’s doubts and worries about the Fed’s loose policy are gradually heating up.
Before the next Fed policy meeting, discussions on reducing the scale of bond purchases have gradually heated up, and different voices have also emerged within the Fed. The Fed’s next policy meeting is scheduled to be held on June 15-16. The market is closely watching whether the Fed’s discussion on reducing bond purchases will lead to some policy adjustments at this meeting.
Fed Vice Chairman Clarida said on Thursday that the Fed’s response to the new crown crisis, including the use of proven effective tools and new tools, helped withstand the unprecedented blow to the US economy caused by the epidemic last year and will continue this year. Boost the U.S. economy.
Fed Vice Chairman Clarida summarized the Fed’s response to the epidemic in an academic paper, but did not mention future policy plans. He pointed out that the fiscal and monetary policy actions taken since March 2020 are unprecedented in scale, scope and speed.
The Federal Reserve lowered interest rates to near zero, purchased trillions of dollars in U.S. debt and mortgage-backed securities, and promised to maintain easing policies in the next few years, and introduced emergency liquidity and financing measures to prevent money market failures and repay A series of new lending tools for households and businesses have been introduced, and rules and regulatory practices have been adjusted to encourage banks to continue lending.
Clarida wrote that the combination of these measures, coupled with the historic fiscal policy response, will provide important support for the economy in 2020 and will continue to promote the expected very strong economic recovery in 2021.
New York Fed Chairman Williams said on Thursday that although Fed officials began to discuss the option of adjusting monetary policy is reasonable, the US economy is still far from the time when the Fed may begin to withdraw support measures.
Williams said that we are still a long way from achieving substantial progress. The Fed’s monthly purchase of $120 billion in bonds is the threshold for us to adjust our bond purchase plan. I think this is not the time to take any action.
Fed officials have stated that they will continue to purchase US Treasuries and mortgage-backed securities (MBS) at the current pace until the economy shows further substantial progress towards the Fed’s inflation and full employment goals. Policy makers seem to be ready to start discussing the best way to reduce the size of debt purchases, after several Fed officials said they thought discussions would begin soon.
Dallas Fed President Kaplan said on Thursday that the United States is weathering the epidemic and is beginning to make progress in achieving full employment and a 2% inflation target. He once again called on the Fed to debate how and when to start reducing its support for the economy.
Kaplan said, I think it is wise to start discussing adjustments to the purchase plan as early as possible, so as to gently and gradually remove the foot from the accelerator so that we can avoid sudden brakes in the future. He was referring to the Fed’s plan to buy Treasury bonds and mortgage-backed securities (MBS).
Kaplan said that with housing prices at record highs, we are clearly weathering the epidemic and making progress. I think the real estate market does not need the level of support currently provided by the Fed. I hope to buy mortgages as soon as possible. Discuss the effects of loan-backed securities and other issues.
Kaplan has previously stated that he believes the labor market is actually tighter than the overall unemployment indicator suggests. He said on Thursday that monetary policy alone may not be able to push the unemployment rate down. Many unemployed people are unwilling to return to work at their previous salary levels. The additional US$300 weekly unemployment subsidy for the epidemic has given many workers the option to insist on waiting for better treatment, which has led to an imbalance between labor supply and demand.
India’s gold imports fell sharply month-on-month in May, but India is advancing spot gold trading
India’s gold imports fell sharply in May. The deadly epidemic forced shops to close and people’s travel was restricted, resulting in reduced demand during important festivals and weddings.
According to people familiar with the matter, India’s gold imports in May dropped sharply to 11.3 tons from 70.3 tons in April. Since this information has not yet been made public, the source requested anonymity.
However, this figure is still 1.3 tons more than India’s import volume when the nationwide blockade was imposed in May last year.
Earlier this year, economic recovery and falling gold prices pushed up gold purchases in India, the world‘s second largest gold consumer. However, the resurgence of the epidemic prompted many regional governments to impose restrictions on the movement of non-essential enterprises and personnel, reducing demand again.
India is advancing spot gold trading, trying to gain a greater voice in pricing. India is moving towards establishing a spot gold contract, finalizing trading rules, and firmly grasping the right to price gold.
India is the world‘s second largest consumer of gold. Giving gold at weddings and festivals and buying gold as a means of holding value are deeply rooted traditions in India. India has been working hard to reform its fragmented gem and jewellery industry to improve the transparency of supply, promote the implementation of purity standards, and increase consumer confidence.
The Securities and Exchange Commission of India, appointed by the government, proposed a new framework that prescribes the roles of spot exchanges, appraisal agencies, vaults, and traders. The policy will be open for public comment on June 18.
The analysis indicated that although there is no deadline for the introduction of the final regulations, the industry expects it to be determined in September. The Indian gold industry also counts on spot trading to give it a greater say in pricing, just like China, the largest gold consumer.
Analysis shows that spot gold trading is a good structural reform that the gold industry urgently needs. Once people can convert more of the gold left in the country into electronic securities, they can better trade and improve currency circulation in the economy. The new regulations aim to promote parallel transactions.
According to the new regulations, a common interface will be established between vault management institutions, depository institutions, stock exchanges and clearing companies. Spot gold that enters the vault through imports or domestic refineries will be converted into electronic gold receipts and then traded on the spot market.
PR. Somasundaram, managing director of the World Gold Council’s Indian business, believes that spot gold transactions will reduce the cost of consumers buying gold, ensure the quality of gold, and prevent counterparties in contract settlement. risk.