On Friday (July 23) Shanghai Gold T+D closed up 0.43% to 376.4 yuan/gram; Silver T+D closed up 0.71% to 5260 yuan/kg. The price of gold closed up mainly because the market believed that the economic momentum of the US in June had slowed sharply, especially the recovery of the labor market was still relatively slow, which supported the safe-haven demand for gold prices. In addition, the U.S. bond bidding interest rate has reached a record low, and factors such as the rampant mutation of the virus have also supported the gold price. However, the optimistic expectations of Biden’s infrastructure plans limited the rise in gold prices.
On July 23, 2021, on the Shanghai Gold Exchange, the trading volume of gold T+D was 17.756 tons;
Gold T+D closed up 0.43% to 376.4 yuan/g, with a trading volume of 17.756 tons and a turnover of 6,669,739,920 yuan. The settlement direction was “pay short for long”, and the settlement volume was 6.116 tons;
Mini gold T+D closed up 0.45% to 376.56 yuan/g, with a trading volume of 2.9776 tons, with a turnover of 1,118,164,952 yuan. The settlement direction was “pay over to short”, with a settlement volume of 10.192 tons;
Silver T+D closed up 0.71% to 5260 yuan/kg, with a trading volume of 3,650.476 tons, with a trading value of 19.165.5 million 1,526 yuan. The settlement direction was “pay over to short”, with a settlement volume of 241.380 tons;
U.S. economic momentum slowed sharply in June, supporting gold prices
New data released by the Chicago Fed on Thursday local time showed that the momentum of the US economic recovery has slowed sharply in June, which is more consistent with the report released by the Federal Reserve a few days ago. Commerzbank recently believed that the US economic recovery may have passed its peak.
The Chicago Fed National Activity Index, an economic indicator that measures overall economic activity and inflationary pressure in the United States, fell sharply from 0.26 in May to 0.09 in June. The index is composed of 85 economic indicators from four categories of data. The Chicago Fed stated in a press release that among the 85 individual indicators in June, 40 indicators deteriorated compared to May.
Among them, the contribution of employment, unemployment, and hourly wage categories to the index fell from 0.15 in May to 0.09 in June. In June, the United States added 850,000 jobs, but the unemployment rate rose to 5.9%, which was partially offset by The labor market is rising.
At the same time, the contribution of production-related indicators to the index in June was only 0.01, a sharp drop from 0.26 in May.
The Chicago Fed’s data is consistent with the latest survey report on the US economic situation released by the Federal Reserve a few days ago, which was compiled based on the latest survey results of the 12 regional reserve banks of the Federal Reserve. The Fed reported that disruptions in the U.S. supply chain are more common, and factors such as rising price pressures are restricting further economic recovery.
The release of these reports coincides with the delta variant virus raging in the United States. The market is worried that as the number of infections increases again, it may bring new lockdown measures and slow down the economic recovery.
According to data from the Centers for Disease Control and Prevention (CDC), the average number of new cases per day in the United States was about 30,000 in the past seven days, while the average number of new cases in the seven days in June was 11,000.
Commerzbank recently reported that the US economic recovery may have passed its peak. The bank believes that the growth of the US economy in the third quarter will slow down from the previous quarter. As the effect of financial support (especially stimulus measures for households) fades, private consumption is losing momentum, and the construction industry seems to be cooling down under the influence of supply bottlenecks and rising prices.
Ellen Zentner, chief US economist at Morgan Stanley, said recently that we have passed the peak of growth and entered a relatively modest stage of expansion.
The recovery of the US job market still faces numerous obstacles, supporting gold prices
Last week, the number of first-time jobless claims in the United States unexpectedly recorded the largest increase since late March, highlighting that although the job market is improving, the weekly data fluctuates sharply.
Data released by the US Department of Labor on Thursday showed that in the week ending July 17, the number of people applying for unemployment benefits for the first time totaled 419,000, an increase of 51,000 from the previous week. Bloomberg’s previous survey of economists yielded a median forecast of 350,000.
As of the week of July 10, the number of continuous claims for unemployment benefits fell to 3.24 million. The unexpected increase in the number of first-time jobless claims reflects a substantial increase in the number of applicants in the four states of Michigan, Texas, Kentucky and Missouri. With many factors making it difficult to adjust weekly data seasonally, the rapid spread of delta variants of the new coronavirus may inject more volatility into the data in the coming months.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, said that due to automakers’ annual maintenance downtime and changes in the scope of their business, the number of applications for unemployment benefits continues to be plagued by difficulties in seasonal adjustments.
Last week was also the investigation period for the monthly employment report of the US Department of Labor. Most states, including New York, Oklahoma and Tennessee, reported a month-on-month decrease in unadjusted initial jobless claims last week.
It is also reported that labor shortages have affected the efficiency of U.S. rail transportation and the economic recovery has been restrained. The nation’s rail transportation industry is facing recruitment difficulties. Affected by this, the efficiency of rail transportation is currently difficult to return to the level before the epidemic, and economic recovery is suppressed.
The report said that insufficient resumption of work in the railway transportation industry continues to cause delays in the transportation of chemicals, fertilizers and other products, threatening the operations of factories in the United States and hindering the economic recovery process. This issue has attracted the attention of federal regulators. Previously, regulators had expressed concern about the railway transportation industry’s attempts to cut costs and adjust its operating plans.
Martin Oberman, chairman of the Federal Ground Transportation Committee, said that American railroads cannot be sacked and only maintain basic operations. Otherwise, it will be like a football team with only a quarterback left. The committee is investigating how to improve effective competition in the railway industry.
Regarding this issue, many persons in charge of railway transportation said that they have done their best during the new crown epidemic, but the epidemic has indeed caused a large number of workers to be isolated at home in the past year or so, and the company’s customer demand fluctuates greatly. These are great challenges for operators.
The interest rate of U.S. Treasury bids reached a record low, supporting gold hedging demand
The U.S. Treasury Department’s $16 billion 10-year inflation-preserved bond (TIPS) auction on Thursday had the lowest winning interest rate on record, and the journey of bottoming out the actual yield is still continuing. The tender sale attracted good demand, reflecting investors’ growing concerns about inflation.
In past auctions, real interest rates have never been so low. Jim Vogel, an interest rate strategist at FTN Financial, said that the demand for the 10-year TIPS auction was good. The bid multiple was 2.50 and the winning interest rate was -1.016%. Throughout the morning transaction, the actual yield was lower than -1.0. %. Vogel said that when traders assess inflation expectations, they are based on what they think investors will worry about next, and rarely consider fundamental factors or Fed communications.
TIPS is a bond investment whose coupon rate is much lower than that of other treasury bond investments of the same maturity. For TIPS, the principal balance is adjusted monthly (usually rising, sometimes falling) to match the current US inflation rate. Therefore, TIPS’ “real yield to maturity” indicates the investor’s return when it is above inflation (or in this case below inflation).
Analysts pointed out that in this auction, the actual rate of return that investors are willing to accept will lag behind the official U.S. inflation rate of 1.016% every year for 10 years. Why are they doing this? There may be two reasons: First, TIPS can prevent unexpectedly high inflation in the future. Secondly, the nominal yield of 10-year U.S. Treasuries (currently 1.28%) is also very likely to lag behind inflation, and it does not seem to have much upside potential right now. For many investors, TIPS seems to be a better choice.
At present, the Fed has entered a period of silence before the interest rate decision in July next week. The poor performance of employment data on Thursday may strengthen the Fed’s expectation that it will maintain a dovish policy stance.
Ben Jeffery, interest rate strategist at BMO Capital Markets, said that after weeks of volatility, the market will enter a period of equilibrium before the Federal Reserve resolution next week. Jeffery said the 10-year U.S. Treasury yield may fluctuate in the range of 1.25%-1.3%. The market is currently in the process of building positions before the Federal Reserve meeting next week, so we expect it to be sideways by next Wednesday.
The US infrastructure plan is expected to be launched, supporting risk appetite and suppressing the price of safe-haven gold
The Biden administration’s $1.2 trillion infrastructure plan failed to pass due to obstruction by Republican lawmakers, but Biden does not seem to be worried about the Senate’s approval of the plan.
On Wednesday night, Eastern Time, the U.S. Senate voted on whether or not to start a debate on the $1.2 trillion infrastructure plan agreed by lawmakers from both parties last month. The results showed that there were 49 votes in favor and 51 votes against, which failed to meet the requirements for starting the debate. Supported by 60 votes. In addition to the opposition of all 50 Republicans, Schumer, the leader of the Senate Majority Democrat, also voted against it in order to follow the rules and then vote on the plan again.
For Democrats, such a voting result is a setback. Because it may mean that the Senate process will continue until midsummer. The Senate Democratic leader previously hoped that this Wednesday will begin to simultaneously advance the bills related to the infrastructure program and another independent program of 3.5 trillion US dollars on childcare, education, medical insurance, poverty alleviation, and climate change. The latter is a so-called human infrastructure program to expand the social safety net, and it has not received support from Republicans.
However, Biden said on Wednesday night that he is still confident that the Senate can start the debate on the plan by voting next week, and the text of the plan may be completed by next Monday. He said that we will complete the task, and the failure of the procedural vote on Wednesday has nothing to do with this.
The senators participating in the bipartisan negotiations also expect that the final agreement can be completed early next week. If the Democratic Senate leaders unanimously determine the time for the next vote, they should be able to come up with an agreement.
The 22 Democratic and Republican senators who are drafting the final version of the bill stated in a statement that they have made significant progress in the details of the plan agreement and are close to reaching a final agreement, hoping to finalize the final draft “in the next few days” and advance the legislative process of the bill.
The 11 Republicans in the Senate who participated in the bipartisan negotiations wrote to Schumer, implying that they would support the start of the debate in the vote next Monday. Senator Rob Portman, who led the Republicans to participate in infrastructure consultations, also said that we voted against on Wednesday because we are not ready yet, but we do hope that the bill will be launched as soon as possible, and we think it is next Monday.
Therefore, assuming that these Republicans and all Democrats who expressed their views support, the Senate vote next Monday should be passed with enough votes.
Media commented that the Senate may try to advance the infrastructure project again as early as next Monday. If the proposal fails, the Democrats will have to consider whether to advance the infrastructure project and the aforementioned $3.5 trillion human infrastructure program at the same time.
The Democrats are prepared to use the budget adjustment process in the Senate to pass the $3.5 trillion budget proposal when all Republican senators oppose it. After using this procedure, Senate Democrats can circumvent the 60-vote restriction to pass the bill. Only the support of all 50 Democrats is required, plus one vote for Vice President Harris to pass the bill. This procedure was used in the 1.9 trillion new crown rescue plan passed in March this year.
Last weekend, lawmakers from both parties confirmed that due to strong opposition from the Republican Party, the support plan for the IRS has been removed from the infrastructure plan. The two parties are still negotiating how to raise funds for the infrastructure project.
On Thursday, Schumer said that senators from both parties should be convinced that, as the leader of the majority party, he has been committed to passing two major infrastructure plans before Congress adjourns in August, that is, the two-party infrastructure framework and related human resources. The budget resolution of the facility program.