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The prospect of global economic recovery has been shaken! Is the market betting on a depreciating dollar? It's only a matter of time before the price of gold hits a new high

Time: January 9, 2020 14:32:13 Zhongcai
On Thursday (January 9), the World Bank said that global economic growth may slowly pick up in 2020 and 2021. Although trade tensions have eased, the pace of global economic recovery will be slower than previously expected.

The bank's latest report predicts that the global economic growth rate will increase slightly from 2.4% in 2019 to 2.5% in 2020, mainly due to the stabilization of some large emerging economies. However, it warned that the situation is still fragile, lowering global economic growth forecasts for 2019, 2020 and 2021, and lowering growth forecasts for the euro area in 2020.

If recent policy actions continue to reduce policy uncertainty, especially those that ease trade tensions, the expected global economic recovery may be stronger.

Nonetheless, downside risks still dominate, including the possible re-escalation of global trade tensions, a sharp decline in major economies, and financial turmoil in emerging markets and developing economies.

Global economic recovery falters Trade issues and investment faltering in 2019 have led the global economy to record its weakest growth since the financial crisis. Economic recovery depends on many factors to get back on track, and if tensions between the United States and Iran intensify, the likelihood of a good situation may be reduced.

Ayhan Kose, director of the World Bank's Forecasting Bureau, said the report only reflects the situation as of December, and that geopolitical tensions that have occurred since then may weigh on confidence and increase uncertainty. The response so far has been modest, but further observation is needed because the situation is constantly evolving. A fragile security situation is always a problem, and if uncertainty continues to increase, it will have an impact on confidence, which will drag down investment and global activity.

The World Bank said that after pressure in 2019, global trade is expected to rebound. The growth rate of global trade in 2020 will rise from the post-crisis low of 1.4% last year to 1.9%, and it will further accelerate to 2.5% in 2021. It also warned that tensions could escalate.

With uncertainties and rising risks, global finance ministers and central bank governors pledged at an important rally in October last year to use all means, including fiscal policy, to support demand. At that time, the International Monetary Fund cut its forecast for global economic growth in 2020 to 3.4% from 3.5% in July.

Emerging market countries are less prepared for the global economic downturn. The World Bank raised its forecast for US economic growth in 2020 and 2021 by 0.1 percentage points, to 1.8% and 1.7%, and the growth rate in 2019 is expected to be 2.3%. The bank said that the reduced uncertainty surrounding international trade policy could bring more support to the US economy.

However, most of the outlook for other regions in 2020 has been revised down. The World Bank lowered its growth forecast for Europe by 0.4 percentage point to 1% this year, maintaining the growth forecast for next year at 1.3%, and keeping Japan's economic growth forecast for 2020 unchanged at 0.7%.

The forecast for a slight recovery in the global economy is mainly due to a slight improvement in the situation in some large emerging economies, but most of them remain vulnerable as they have just emerged from a recession or sharp decline. Eight countries will contribute about 90% of global growth in 2020: Argentina, Brazil, India, Iran, Mexico, Russia, Saudi Arabia, Turkey.

In its semi-annual report, the World Bank stated that without the contributions of these countries, the overall growth rate of emerging economies will hardly accelerate, and the global economy will actually slow down due to the slowdown of advanced economies.

Even if the U.S. economy declines slightly, long-term U.S. Treasury yields will approach zero. A top economist at the Federal Reserve said that the U.S. recession may bring short-term and longer-term U.S. Treasury yields closer to zero, thereby limiting the ability of the Fed to support economic growth. tool.

Michael Kiley, deputy director of the Federal Reserve Board ’s financial stability unit, said that even a mild recession in the US economy would lead to long-term bond rates near zero, making the United States experience similar to Europe and Japan. Looking back at 2008, the Fed's overnight policy rate fell to almost zero and remained until 2015, but the long-term interest rate is still much higher than this level.

The conclusion of this research is starting to question when the U.S. economy is down again, if the Federal Reserve re-enables quantitative easing in times of crisis, that is, buying long-term government bonds to lower yields and reduce the cost of borrowing for all maturities, this practice Whether it will still work. Because long-term bond yields may already be low or falling, achieving this goal through asset purchases may not bring more economic benefits.

Kiley noted that U.S. interest rates are already low and have "remarkably fallen" in the years following the recession. He also stated that during the relatively mild recession of the US economy in 1990 and 2001, the average decline in US 10-year Treasury yields was 1.7 percentage points based on changes six months before and two years after the recession began. On Wednesday afternoon in New York, the 10-year US Treasury yield was 1.87%.

He said research shows that "whether it's 1-day to 7-year or 10-year" bond yields will reach zero. These scenarios highlight the possibility that the recession in the United States will bring nominal interest rates to unprecedented levels and also reflect the limitations of the ability of monetary policy to support economic recovery.

Will the dollar depreciate in 2020?

Billionaire fund manager Jeffrey Gundlach said that his strongest market belief is that the dollar, which is still tough, will depreciate. Faced with pessimistic predictions, the US dollar is basically its own way. Last year, the Bloomberg Dollar Spot Index fell by less than 1%, and its volatility was halved.

However, Gundlach, CEO of DoubleLine Capital, said that the US fiscal and trade deficit continues to widen, the yield curve has steepened, and foreign investment has fallen, which may eventually hit the dollar.

Gundlach said on Tuesday, "I am most convinced that the dollar will weaken. As foreigners withdraw from the United States. And I think this will be the theme for the next few years. The position of the dollar will continue to fall. There is no change. It may start this year. The dollar will be much weaker. "

Gundlach has been warning of a possible dollar decline since at least January 2018. If expectations come true, gold and other commodities are expected to be positive. He also noted that it is not expected that the overall stock and bond markets will return to "close to 2019 levels" this year.

In 2019, almost every major asset showed good performance at first sight. However, he believes that investors can expect volatility to increase over the next decade. The market in the next decade will not be brilliant, but it will not be dull.

Gold is starting a new round of bull market data. Gold prices are starting a new round of bull market. The initial support price is $ 1,400 and the resistance is $ 1,700.

The two main supporting factors for gold over the next 10 years will be rising stock market volatility and a weaker dollar. Precious metals denominated in US dollars reached their highest level in six years at the end of 2019, and gold prices denominated in other currencies also reached new highs.

With the entire Middle East in trouble, coupled with the low interest rates that make the opportunity cost of gold very low, these are very important positive factors. At present, the price of gold will rise to a higher level.

There is also the uncertainty of the US election this year. By March or April, when the situation becomes clearer, the entire market may be more nervous.

In addition, at the beginning of each year, gold usually performs well. At the end of the year, gold investors usually reduce their positions, so after the outbreak of the situation in the Middle East, the positions in the gold market were not high.



(Spot Gold Daily Chart)
As of 13:50 Beijing time, spot gold was reported at US $ 1,551.17 per ounce, a decrease of 0.02% during the day.
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