Dialogue with Pepperstone: Will Gold hit new highs in the future?

This means that the next big rise in gold will have to wait, and there is obvious Profit Taking.

The last time gold hit a record high was in May, it continued to decline until it reached $1,810 in October, which took five months to reverse. Looking further back in history, after gold hit a new high in March 2022, it also fell to November 2022, which took 8 months.

Will gold reach new highs in the future? I think so, but too long-term judgments and directions are meaningless if they don't adapt to the trader's strategy cycle. So I think judging from the historical trend, coupled with the long upper shadow line of the candle chart on December 4, the next new high will have to wait for a long time.

After the July meeting, the Fed was still relatively hawkish on whether to further raise interest rates, emphasizing the "real-time nature" of interest rate policy adjustments based on data and gradually pricing in a policy stance of "high-interest rates for the long term." Around November, Fed officials finally said that "the market is partly doing the work of the Fed." At this time, the yield on the ten-year U.S. Treasury note reversed its decline, leading to a rebound in non-U.S. currencies.

Judging from Powell's statement on December 14 that "the Fed discussed the timing of an interest rate cut at the meeting," we are already at the peak of interest rates, and the market is now actively discussing an interest rate cut next year.

From my point of view, the impact of local wars on the market is concentrated in the short term, because a sudden war is a black swan event. The market will panic at the beginning, but once it gets used to it, it will be no big deal. Taking the Russo-Ukrainian War as an example, almost two years have passed since it started on February 24, 2022. As an oil-producing country, Russia should theoretically be good for international crude oil prices, but everyone looks at the trend chart of the past two years. From the negative oil price incident in 2020 until June 2022, crude oil has been on an upward trend. It's hard to say how the rally after February 2022 will be any different from before. Similarly, in 2023, won't the decline in the second half of last year continue? In a conflict, who wins outright, and who loses outright? No one.

Only direct conflicts between international powers, such as the five permanent members of the Security Council, can cause serious damage to the financial system. But all five countries have nuclear weapons and are in a balance of power, so a war that seriously damages the financial system will not happen. The wars that occurred involved unimportant countries, so the impact was concentrated in the short term.

First, let’s look at the U.S. economy under the assumption that there is no presidential election.

Although the U.S. economy will show amazing resilience in 2023, it is unlikely to be smooth sailing in the coming year. The pace of U.S. economic expansion remains strong in 2023, including a quarter-on-quarter annualized GDP growth rate of up to 5.2% in the third quarter coupled with rapid and substantial growth is expected to bring the inflation rate back to the Federal Reserve's 2% target quickly. The U.S. economy will face more challenges in 2024. The main question facing the economy and policymakers is how far the "last mile" of the deflation process can be accomplished without tipping the United States into recession.

The risk of a deeper recession is higher in 2024 than in 2023, and rising monetary headwinds will combine with greater fiscal drag to lead to a broad-based deterioration in demand, signs of which are already starting to show up in recent PMI surveys.

Like most other advanced market economies, U.S. inflation has cooled sharply from its highs in mid-2022, although much of the slowdown in price measures during this period has been due to commodities.

Let us return to the US election. I believe that the US election will affect the development of the US dollar in the short term, but the general direction mentioned above is difficult to shake.

You will remember the incredible volatility across asset classes during previous elections, especially the 2016 election which is still fresh in the minds of some traders.

Historically, traders have been less able to price election risk, but this time around, unless we see real public tensions and social unrest between voters swinging left and right, the likelihood of extreme volatility seems to be lower this time in elections.

Assuming that Trump is the Republican nominee and takes on Biden, it can be assumed that this will be an ugly matchup with neither side holding anything back. However, unlike 2016 and 2020, both candidates are familiar players in the market, and market participants will be more confident in their ability to price events.

As we move into Quarter 2/ Quarter 3 of 2024, it will be very important how the economy develops until the election, when we will need a clearer picture of the labor market, inflation, and consumer health - all of which will be both parties use and promote it in different ways.

The market may focus all its attention after the party congresses (Republican Conventions from July 15 to 17, Democratic Conventions from August 19 to 22) and as the head-to-head live debates approach in the election. We should see this from the hedge flows, specifically the October contract of VIX futures would be a good guide as to where we can look at its premium relative to the September contract.