The trade situation between China and the United States has eased, gold and silver are under short-term pressure

Singapore (Oct 14)  Major macro news: the 13th round of high-level economic and trade consultations between China and the United States have concluded and important progress has been made: the United States and China have reached a "first phase" trade agreement, and the United States will not impose tariffs on 250 billion US dollars worth of Chinese products next week.

The Fed restarted its expansion and extended its repo operations: the Fed announced Friday that the Federal Open Market Committee (FOMC) had held a videoconference on Oct. 4 and made a two-pronged decision. First, starting on October 15th, $60 billion a month in short-term Treasuries, also known as Treasury bills, will last until at least the second quarter of 2020. Second, daily overnight repo operations will be implemented and 14-day repo operations will be implemented twice a week; this will continue until at least January 2020. The Fed said the move did not mean a change in FOMC monetary policy.

Kaplan, chairman of the Federal Reserve in Dallas (who has the right to vote in 2020): fear that a slowdown in US manufacturing may worsen, as will the problem of weak global economic growth. The Fed's plan to buy Treasury bills (T-Bills), or balance sheet expansion, has nothing to do with FOMC monetary policy. Rosengren, chairman of the Federal Reserve in Boston (FOMC voting committee in 2019): based on my expectations of the US economy, the Fed does not need to cut interest rates any further. FOMC can be patient before deciding whether to do more. Kashkali, chairman of the Federal Reserve in Minneapolis, said he did not say negative interest rates would never be possible, but hoped it could be avoided. If there is an economic downturn, we will first cut interest rates and then turn to QE. If the Fed plans to cut interest rates at its October meeting, I may support it.

Viewpoint: gold and silver came under pressure on Friday as the possibility of a Brexit agreement increased, trade between China and the United States eased, risky assets such as the stock market soared and risk aversion cooled. In the short term, it is expected that the easing of the trade situation between China and the United States will continue to boost macro sentiment, which in turn will still cause a certain negative effect on gold and silver.

But the Fed's intention to restart expansion and extend repo operations is clear; geopolitical tensions have risen in the Middle East, as Turkey strikes Syria, the United States says it will sanction Turkey, Iran's tanker accident, and so on. Therefore, we believe that even if the trade situation between China and the United States relaxes, the international trade environment has not been substantially improved, fears of a slowdown in global economic growth have not receded, and market risk appetite is difficult to really rise, coupled with the fact that the monetary policy of global central banks remains loose and geopolitical risks occur frequently, it is expected that gold and silver will still be supported in the medium term.

Overall, short-term gold and silver may be adjusted as a result of the easing of Sino-US trade situation, but it is expected that after the adjustment is fixed, gold prices will still open up room to rise in the medium term. Therefore, it is suggested that investors should take every callback to establish a long-term multi-single strategy.


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