Last Thursday, the U.S. Consumer Price Index (CPI) showed signs of cooling, prompting the market to begin to widely expect rate cuts. Then on Saturday, former President Trump was attacked, which not only raised expectations of his victory, but also rekindled enthusiasm for the "Trump deal", causing the prices of cryptocurrencies such as Bitcoin to rise rapidly. By Tuesday this week, the price of gold hit a record high, with spot gold prices closing at $2,468 per ounce, with a cumulative increase of 19.68% this year.

According to analysis, the weak performance of U.S. economic data and the Fed's expectations of loose policies are the main factors driving the rise in gold prices. At the same time, Trump's assassination attempt has increased political uncertainty, coupled with rising geopolitical risks around the world - such as the European debt crisis, the financial crisis, and geopolitical conflicts in the Middle East - which have further enhanced the market's demand for precious metals as a safe haven. In addition, the demand for gold from central banks around the world continues to grow. UBS Group reported last month that the scale of central bank gold purchases has reached the highest level since the late 1960s.

Source: uSMART SG

Two factors for the strength of gold: "Trump deal" and "rate cut deal"

When the "Trump effect" and the "rate cut effect" appear together to form a "strong resonance situation, assets such as small-cap stocks, Bitcoin and gold tend to be more favored by investors, and the yield curve of U.S. Treasury bonds will become steeper. The consumer price index (CPI) in June fell more than expected within inflation expectations, and the dovish remarks of Federal Reserve Chairman Powell strengthened the market's expectations that the Federal Reserve will cut interest rates for the first time this year in September. In addition, Trump's public support has increased after the first presidential debate and the recent shooting incident, indicating that The possibility of "Trump's second term" is coming. Against this background, the U.S. stock market has shown a trend of fluctuating recovery, the Treasury yield curve has steepened, the U.S. dollar exchange rate has been relatively weak, the prices of gold and Bitcoin have been supported, and emerging market currencies have also seen hope for recovery.

The U.S. fiscal alarm bell has sounded, and the safe-haven value of gold has been highlighted

In June this year, the CBO adjusted the fiscal budget for fiscal year 2024, raising the fiscal deficit of $1.51 trillion originally predicted in February to $1.92 trillion, an increase of 27%. This adjustment is mainly reflected in expenditures, and the changes in personal income tax, wage tax and corporate tax on income are different.

Specifically, , the increase in spending mainly involves the following aspects:

• Starting from July 1, the restarted student loan relief program will increase spending by $145 billion.
• The Federal Deposit Insurance Corporation is expected to increase spending by $70 billion to cope with the risk of bank failures.
• Medicaid spending is expected to increase by $50 billion.
• Discretionary spending on aid to Ukraine, Israel and other regions approved by Congress is expected to increase by $60 billion.

CBO also predicts that in the next decade, mandatory spending will continue to rise as social security and medical insurance spending increases. At the same time, due to the high interest rate environment in the past two years, net interest expenses have increased. Outflows will also increase, which will cause the share of US fiscal spending in GDP to increase from 24.2% in 2024 to 24.9% in 2034.

To support this increased fiscal spending, financing costs are a key factor. The CBO is relatively optimistic about future financing costs. In its latest report, it is expected that the federal funds rate and the 10-year US Treasury bond rate will gradually return to their long-term averages starting this year. It is expected that by early 2025, the Federal Reserve may respond to slowing inflation and rising unemployment with substantial interest rate cuts.

These trends indicate that the possibility of the Federal Reserve implementing a rate cut policy in the future is quite high.

How to conduct investment transactions on uSMART:

After logging into the uSMART SG APP, click "Search" from the top right of the page, enter the target code, such as "XAU/USD", and enter the details page to learn about the transaction details and historical trends. Click "Trade" in the lower right corner, select the "Buy/Sell" function, and finally fill in the transaction conditions and submit the order; the picture operation instructions are as follows:

Sourse: uSMART SG

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