How to promote promote precious metals ?

Stimulus policy to promote precious metals under the support of strong.

A sharp rise in 10-year Treasury yields at the start of the year has weighed on precious metals prices. In addition, on January 11, Atlanta Fed President Bostic said he was open to tapering in late 2021 and could raise interest rates in the second half of 2022. 

Markets reacted sharply to the news, with Treasury yields jumping, the dollar back above the 90-mark and precious metals and bitcoin both tumbling.

In December 2020, the number of new non-farm jobs in the United States turned negative, with the reported decrease of 140,000, lower than the previous estimate and expectation. The severity of the outbreak has had a negative impact on U.S. employment. 

The U.S. consumer price index came in at 0.4%, largely in line with expectations, as energy and food prices rose, while services and discretionary items fell. The resumption of manufacturing and transportation industries in the United States is still progressing, so the overall economic recovery is moderate, but the negative impact on the service sector is greater, the overall employment data declined.

Monetary policy is unlikely to tighten in the short term.

Some Fed officials have made "hawk-side" speeches aimed at communicating with markets in advance in case they react too sharply to monetary tightening. As can be seen from the recent behaviour of US bond yields, expectations of monetary tightening have led to a sharp rise in yields to 1.15%. 

However, some subsequent Fed officials' speeches remain "dovish", believing that monetary policy tightening is too early, and even maintaining the current pace of bond purchases until the end of the year.

As can be seen from the minutes of the December 2020 meeting released by the Federal Reserve, the process of monetary policy tightening this time will be similar to that of 2013 -- 2014, when US bonds fluctuated sharply after the Fed released the tightening expectation. Therefore, the monetary policy tightening this time will be based on a slow exit, and it will communicate with the market continuously before the exit. 

Judging from the current data of non-farm employment and unemployment rate, the possibility of Fed tapering in the first quarter of this year is low, the release of the new vaccine has not been rolled out in a large scale, and the probability of rapid recovery of the US economy is still low before the group immunity is achieved.

Another round of fiscal stimulus is expected.

This week, Biden proposed a new fiscal stimulus package of $1.3 trillion, including an increase in subsidy checks from $600 to $2,000 per person, which we estimate will be $50 million, and increased support for vaccines, small businesses, schools, and state and local governments. 

Once the new round of fiscal stimulus is formally launched this month, it is expected to promote the subsequent recovery of inflation expectations in the market.In our view, Biden's first priority as president will be to aggressively promote fiscal stimulus, which is likely to be passed quickly this month.

All in all, the main reason for the precious metal sell-off is the rapid rise in nominal US dollar interest rates without a significant rise in market inflation expectations. 

The rise in real US dollar interest rates has put pressure on gold prices. In our view, the probability of monetary policy tightening in the near term is small, the US economy remains weak, and the extent of any further rise in nominal US interest rates is limited. 

On the other hand, the probability of fiscal stimulus passed this month has increased, the market inflation expectation will gradually pick up, and the real interest rate of the dollar will further decline. As a result, precious metals have strong underside support and are expected to see a small rebound after the fiscal stimulus kicks in.