Rebound Or Bull Market? London Gold Is One Step Away From Its Historical High, Excess Liquidity May Open Up Commodity Rising Cycle

London gold has surpassed the high of US $1921.15. All parties in the market have expected that it will soon reach the target if it rises at the current rate.

On July 23, London gold continued to rise on the basis of two consecutive days of soaring. From the record high of US $9.32 before publication, it was only $65.00 before publication. London gold has gained $54 in the past two trading days.

On the other side, international priced commodities including colored varieties such as crude oil, iron ore and copper, as well as domestically priced commodities such as screw thread and glass, also reached new highs in recent two days. At the same time, the price operation of major industrial products showed obvious convergence, which led to the discussion on the rise of commodities in the market, and some organizations believed that commodities entered the bull market.

In fact, in recent years, the whole commodity market is more structural, and the performance of precious metals is the most prominent. Although other varieties are also rising at the same time, the overall range is relatively limited. It is more affected by its own industry factors, and some commodity prices are relatively prominent.

"The establishment of a commodity bull market requires two preconditions: economic cycle and currency cycle. Enterprises pull raw materials from the demand side by expanding reproduction and drive up commodity prices to form a virtuous circle. Now, obviously not. " Jing Chuan, chief economist of CUHK futures, said on July 23.

In contrast, it is more reliable to regard the recent trend of commodity market as the mid cycle price rebound brought about by the recovery of domestic epidemic.

Restorative rise

As the most eye-catching varieties in recent years, although gold and silver are also a kind of bulk commodities, their prices are affected by many factors, and the leading factors in different periods are different.

Judging from the recent market performance, the impact from monetary policy is undoubtedly the most prominent. In the first ten days of July, it also provided some evidence of asset risk aversion.

On the evening of July 21, the European Union finally reached a 750 billion euro "recovery fund" plan. At the same time, the United States is also planning to continue to increase stimulus, and is studying a $1 trillion aid bill.

On that night, London gold night market broke through one after another, and the rising rate was significantly higher than that of the previous days, until July 23, when it began to sprint to the $1900 mark.

All parties in the market have expected this. For example, Zhang Jiean, a precious metals researcher at CSCI, recently put forward several driving factors. The main logic is that global monetary easing is expected to last until the end of 2021.

Accordingly, the supply of US Treasury bonds increased, yields fell, and the US dollar index continued to decline. Most of the international priced commodities are priced in US dollars, thus providing price support for related commodities.

"Just as the ruler for measuring the value of a commodity changes, the price will naturally adjust accordingly." Chuanjing said.

For crude oil, iron ore, copper, aluminum, zinc and other non-ferrous metal varieties, the above logic is also applicable, and excess liquidity constitutes a short-term positive for such commodities.

Among them, Luntong copper futures reached an intrayear high of US $6633 / T in mid July, Brent crude oil futures reached a new high on July 21, and the main iron ore contract of Dalian Mercantile Exchange rose to a high of 861.5 yuan / ton on July 22.

In this regard, the relevant person in charge of the Ministry of industry and information technology said in a survey conducted by the China Iron and Steel Association on July 20 that "the recent trend of iron ore price has deviated from the fundamentals, and comprehensive measures should be taken to deal with both the symptoms and the root causes, and the protection of iron ore resources should be planned from the short-term, medium and long-term."

However, if we look at the recent growth of commodities, we can see that the overall driving force does not necessarily exist.

For example, crude oil is a recovery rise due to the OPEC + meeting production reduction, combined with a record decline in the first half of the year.

"As far as the non-ferrous plate is concerned, there are also obvious internal differentiation and different driving forces." Jingchuan said.

He pointed out that the strong performance of copper price in the year was mainly affected by the low cyclical supply. There was no obvious increase in the supply side during the year. On the contrary, the upward trend of aluminum price was driven by consumption on the demand side.

Some of the above-mentioned price hikes are only applicable to the upward price of some products due to the different logic of supply and demand.

New cycle of "bull market"?

Although major commodities have rebounded in recent years, we can not conclude the arrival of "commodity bull".

In Jingchuan's view, the prerequisite for commodity market to open a bull market requires two conditions: economic cycle and currency cycle. When the business situation of the enterprise is getting better, its willingness to obtain cash flow and expand reproduction increases, thus increasing the demand for raw materials and driving up commodity prices. This is a virtuous circle.

However, now that the global economy is in the recovery period of the epidemic, it does not meet the above two conditions. At the same time, the easing from the monetary level is still difficult to produce a significant pull on the demand side. At this time, it is too early to talk about the overall rise of the commodity market.

So, how to define the current commodity market rebound?

"On the whole, the global economy is still in the process of mid cycle recovery, and it is normal for commodity prices to recover." As far as China is concerned, the first half of the year was seriously affected by the epidemic, and economic growth in the second half of the year will naturally bring support to the commodity market.

In this view, the recent rise in commodities also has a more obvious seasonal characteristics.

In horizontal comparison, as China's epidemic situation control is much stronger than that of overseas countries, the performance of domestic commodity market may also be stronger than that of international market, especially some domestic priced bulk commodities.

During the first and second half of the year, infrastructure projects are expected to stop work, which will lead to a significant recovery in the current second half of the year.

Under this expectation, the prices of building materials represented by thread and glass will be significantly stronger than other commodities in the near future.

Take the current main 2009 contract of glass futures as an example. In January this year, the price remained around 1480 yuan / ton. After the outbreak of the epidemic, it dropped to 1177 yuan / ton in mid April, and then rebounded all the way, reaching a new high of 1745 yuan / ton on July 22.

In contrast, the cotton futures closely linked with foreign trade import and export showed a year low and high point of 9935 yuan / ton and 12425 yuan / ton respectively, and the rebound amplitude was significantly less than that of the former.

The above-mentioned commodity price rebound is still determined by the structural factors of supply and demand.

"According to our previous judgment, due to the remarkable effect of domestic epidemic control, it is expected that the domestic commodity market will have a relatively good performance before November this year, and the overall operation will be stronger." Jingchuan said that after November, factors such as the opening of the new fiscal year and the presidential election of the United States need to be considered, and the uncertainties will increase accordingly.

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