The Federal Reserve's actions roil commodity markets: Gold surges, crude oil futures see a sharp drop in long positions

21st Century Business Herald reporter Chen Zhi reported from Shanghai that in the early morning of March 21, the Federal Reserve decided to keep its benchmark interest rate unchanged at 5.25%-5.5%. At the same time, the Federal Reserve expects three rate cuts this year.

The Federal Reserve's "dovish" statement suddenly triggered a market surge in gold buying. As of 6 pm on March 21, the London spot gold trading price hovered around $2210 per ounce, and at one point hit a record high of $2222.65 per ounce.

"Obviously, the Federal Reserve's dovish statement has led the market to bet on a decline in the US dollar index, followed by a surge in technical buying of gold." A Hong Kong private equity fund manager analyzed to the reporter. On March 21, the London spot gold price (2167.22, -17.48, -0.80%) hit a new high, which is closely related to the US dollar index falling rapidly from 104.1 to 103.45 on the same day.

The reporter learned from multiple sources that the surge in gold buying in the financial market seems to have been foreshadowed.

"In the past, as long as the Federal Reserve started to enter a rate-cutting cycle, gold prices would see a surge. Now, many Wall Street investment institutions are waiting for a clear rate-cut signal from the Federal Reserve as a catalyst for their gold buying profits." A precious metals broker said. The Federal Reserve's hint on March 21 that it may cut interest rates three times this year is undoubtedly the trigger for the capital market's gold buying spree.

It is worth noting that in the face of the dovish signals released by the Federal Reserve and the decline in the US dollar index, crude oil (80.78, -0.29, -0.36%) futures fell against the trend. As of 6 pm on March 21, the main contract of Brent crude oil futures hovered around $85.1 per barrel, with a daily decline of about $1.9 per barrel.

The aforementioned Hong Kong private equity fund manager frankly stated that behind this is the market's different "interpretations" of the Federal Reserve's possible three rate cuts this year, because this means that the decline in the US inflation rate is faster than expected, which is not conducive to higher oil prices.

"In addition, the US government released new regulations on automobile exhaust emission standards on the evening of March 20, which led to the impact on the future sales prospects of gasoline vehicles and the corresponding decline in crude oil demand, which invisibly offset the positive impact of the Federal Reserve's dovish rate cut signal on crude oil prices." He analyzed.

Many industry insiders pointed out that the divergence in the price trends of crude oil and other bulk commodities such as gold reflects the capital market's strong concerns about the global economic growth rate under the high-interest-rate environment in Europe and the United States—if the European and American economies fall into a hard landing predicament due to the prolonged lack of interest rate cuts, gold, as a safe-haven asset, will gain more capital favor, while crude oil prices will fall due to the decline in economic prosperity.

Gold hits intraday high

The reporter learned that the Federal Reserve's hint of three rate cuts this year surprised the market.

"The market originally expected the Federal Reserve to cut interest rates only twice this year, and now the Federal Reserve has released a more dovish rate-cut signal." The aforementioned Hong Kong private equity fund manager said frankly. Affected by this, the US dollar index fell below the 104 integer mark, triggering a new round of US dollar short-selling.

But he quickly noticed that shadowing the decline in the US dollar was the gold price hitting new highs. Behind this is a large number of quantitative investment funds selling US dollars and chasing gold prices.

The Hong Kong private equity fund manager frankly stated that this arbitrage behavior seems to have a high probability of success, but the risk is also high, because whenever the gold price hits a new high, many investment institutions will sell gold to lock in profits, causing the price to quickly rise and fall.

As of 6 pm on March 21, the gold price seems to have fallen from its historical high of $2222.65 per ounce to around $2210 per ounce.

"However, this may not change the expectation of many investment institutions to continue to be bullish on gold prices." A domestic private equity fund manager believes. Currently, the trigger for further gold price increases is that the financial market has determined that the Federal Reserve will definitely cut interest rates this year, and as long as the Federal Reserve pulls the trigger on rate cuts, the gold price will rise rapidly.

UBS Group said that once the Federal Reserve starts cutting interest rates, gold prices will gain more upward momentum. Although gold ETFs have experienced capital outflows in the past few months, as long as the Federal Reserve's benchmark interest rate falls, buying of gold ETFs will quickly rebound.

The reporter learned that whether gold prices can continue to hit new highs in the future depends not only on whether global central banks continue to increase their holdings of gold on a large scale, but also on whether a large amount of capital can quickly return to gold ETFs.

In the past few months, affected by profit-taking factors, many capitals have taken advantage of the rising gold prices to reduce their holdings of gold ETFs to secure their profits. Now, if they want to return to the gold ETF market, they need gold to continue to create greater profit effects after hitting new highs.

"Currently, we have found that many funds have gradually returned to gold ETFs, especially wealthy family offices and global macro strategy funds have taken the lead in increasing the proportion of gold investment." The aforementioned Hong Kong private equity fund manager pointed out. Behind this is the increasing risk of a decline in US stocks, leading them to seek gold, which also has good profit effects and is safer, for "asset substitution".

But whether this means that gold prices can continue to hit new highs, there are still many variables.

The reporter learned that most investment institutions believe that the current gold price and US dollar index have fully "digested" the impact of the Federal Reserve's dovish rate cut signal this time. In the case of the decline in the demand for physical gold jewelry due to the rise in gold prices, whether the gold price can go further in the future mainly depends on whether the escalation of international geopolitical risks can cause more global capital to accelerate the return to gold ETFs.

Brent crude oil futures fell against the trend
Compared with the gold price hitting new highs, Brent crude oil futures fell against the trend.
"The financial market is also puzzled as to why the US dollar index is unable to prevent the decline in Brent crude oil futures." A crude oil futures broker pointed out. Initially, the market believed that this may be affected by the new regulations on automobile exhaust emission standards released by the US government on the evening of March 20, because this regulation is not conducive to the sales of gasoline vehicles, or may lead to a decline in future US crude oil demand.
However, many investment institutions quickly discovered that the real driving force behind the decline in oil prices is that the market believes that the Federal Reserve will adjust the number of interest rate cuts this year to "three", indicating that the Federal Reserve has strong confidence in the continued decline in future US inflation, which is not conducive to rising oil prices.
In fact, it was many CTA strategy funds that massively sold off crude oil futures after the Federal Reserve's monetary policy meeting,
Previously, these CTA strategy funds generally expected the Federal Reserve to cut interest rates twice this year due to the slow decline in inflation, and they all supported oil prices. Now they are taking profits and securing their gains.
This crude oil futures broker frankly stated that the impact of the Federal Reserve's monetary policy decision on crude oil futures prices has been largely "digested." Whether oil prices will rebound or continue to fall in the future, the capital market will once again focus on the supply and demand relationship of oil, that is, whether the OPEC+ production cut can offset the increased production pressure from the United States and other oil-producing countries.
There is a peculiar phenomenon that needs to be noted by the capital market, that is, the influence of the rise and fall of the US dollar index on crude oil futures prices is weakening. More and more quantitative funds are no longer betting on rising oil prices due to the decline of the US dollar index, because they know that the current US government still does not want oil prices to rebound quickly.