Consensus analyst Li Gangfeng, a special analyst for the European Natural Resources Fund Commodity Discovery, wrote on Refinitiv Lufax that unless the Federal Reserve cuts 50 basis points on September 18, a 25 basis point cut is likely to trigger the traditional investment wisdom of "buy on rumors, sell on news". After all, the (Western) markets have already started preparing for interest rate cuts in the first half of 2023, and it is time to take profits. In other words, the US stock market may peak this month (if Trump is re-elected, the US stock market may have a honeymoon period of about six months), and gold may become a cash machine, also pulling down gold prices when the stock market falls. However, at present, every time gold prices sharply decline, funds clearly flow in to buy at lower levels. Data Source: CFTC/LSEG Workspace For comparison purposes, the metal equivalent of COMEX gold is divided by 10, and the metal equivalent of COMEX silver is divided by 100. Currently, the reference of Nymex palladium is very low. As of last Tuesday, long positions in U.S. metal funds decreased while short positions increased significantly, resulting in a net long position pullback, reflecting a shift in the market from interest rate trading to recession trading. The long positions of U.S. gold funds fell slightly by 3% last week, marking the second consecutive week of decline; at the same time, short positions in funds increased by 14%. As a result, fund holdings fell from a net long position of 737 tons to 705 tons, marking the 47th consecutive week of net long positions (previously 46 weeks) and 78% of the historical high of 908 tons in September 2019. As of September 3, the dollar gold price has risen by 20.7% this year (up 22.3% from the previous week), while long positions in funds have accumulated by 35.9% over the same period (up 40.5% from the previous week). Silver, which is highly correlated with gold prices, has always exhibited stronger volatility than its counterpart. Last week, long positions in U.S. silver futures fell by 8% compared to the previous week; short positions in funds rose sharply by 56%, resulting in fund holdings falling from a net long position of 5487 tons to 4121 tons, the lowest level in the past three weeks and the 26th consecutive week of net long positions, representing 27% of its peak period. As of September 3, the dollar silver price has risen by 18.0% this year, with fund long positions accumulating by 12.9% (22.3% in the previous week) and short positions falling by 24.1% (down 51.2% in the previous week). Long positions in U.S. platinum funds fell by 10% last week; however, short positions increased by 45% at the same time, resulting in a drop in net long positions from 5 tons to a net short position of 17 tons, the lowest level in the past 26 weeks, ending two consecutive weeks of net long positions in funds. Historically, U.S. platinum fund net short positions have been maintained for 31 consecutive weeks (from April 2018 to October 2018). The net short position of U.S. palladium funds has risen to 40 tons, continuing to hover at historically low levels. Despite the end of the bull market in palladium, if palladium continues to maintain a significant net short position, it may still be difficult for other precious metals to completely reverse the trend. U.S. palladium fund holdings have been in a net short position for 94 consecutive weeks, the longest historical period of net short positions. Funds have increased their net long positions in U.S. gold futures by 67% since the beginning of the year (up 101% in 2023). Data Source: CFTC/LSEG Workspace Funds have increased their net long positions in U.S. silver futures by 56% since the beginning of the year (down 44% in 2023). Data Source: CFTC/LSEG Workspace Funds have decreased their net long positions in U.S. platinum futures by 164% since the beginning of the year (down 7% in 2023). Data Source: CFTC/LSEG Workspace Funds have decreased their net long positions in U.S. copper futures by 3% since the beginning of the year (down 0.3% in 2023). Data Source: CFTC/LSEG Workspace In short, as can be seen from the above figures, despite global inflation heating up in recent years, metal prices have experienced varying degrees of decline due to the lack of funds in the futures market to drive leverage. If someone had a crystal ball a few years ago and knew that global inflation would skyrocket this year, and engaged in long positions in precious metals in the futures market, they would likely lose money. The most ironic thing is that since the global spread of the pandemic in 2020, net long positions in precious metals in the U.S. futures market have continued to decline, reflecting a deliberate effort by funds to prevent precious metals from rising. The CFTC weekly report on U.S. copper futures has been available since 2007. Since copper was in a bear market from 2008 to 2016, it is not surprising that the historical net positions in U.S. copper futures have mostly been in net short positions. However, starting in 2020, due to the disruption of supply and mining operations caused by the global pandemic, and market expectations of strong demand for copper from electric vehicles, copper prices have risen, even reaching new historical highs. However, the current global investment outlook is entering an economic recession, leading to a decrease in commodity demand. As the U.S. presidential election approaches (in October), or in 2025, be cautious of a drop in copper prices. Copper prices are highly correlated with U.S. stocks. An important indicator for short-term price directions in gold is the gold price/gold mining stocks ratio. Last week, the U.S. gold price/North American gold mining stocks ratio showed an increase: Data Source: LSEG Workspace As of Friday (6th), the gold price/North American gold mining stocks ratio was 17.37X, up 6.8% from 16.27X on the 30th. The ratio hit a year-to-date high of 19.22X (closing price) 29 weeks ago, and has accumulated a 5.7% increase this year. For the full year in 2023, it has accumulated a 13.2% increase (6.4% in 2022), with the highest ratio of 17.95 in 2023 and the lowest in January 2023 and 2022 of 13.99X and 11.24X, respectively. Tracking overseas gold mining stocks prices is a reliable forward-looking tool; if gold prices continue to rise but gold mining stocks experience a sharp decline, it's time to be cautious. Gold-silver ratio The gold-silver ratio is an indicator of market sentiment. Historically, the gold-silver ratio has operated at around 16-125 times: Data Source: LSEG Workspace Generally, the higher the market panic, the higher the gold-silver ratio tends to be, such as in 2020 when the COVID-19 pandemic spread globally, causing the gold-silver ratio to rise above 120.Historical high of double.Last Friday, the Gold-Silver Ratio was 89.43, up 3.1% compared to the previous week and up 3.1% for the year. The cumulative increase for 2023 is 14.0%, with the highest and lowest points of the year being 91.08 and 75.93 respectively. In 2022, there was a decrease of 3.1%. It is important to note that both the US Dollar Gold Price/North American Gold Mining Stock Ratio and the Gold-Silver Ratio are showing a clear trend of bottoming out and rebounding. The financial markets have clearly entered into recession trading. The market is anticipating a 0.25% interest rate cut in the United States in September. The market believes that the probability of a 0.5% rate cut on September 18th has dropped from 49% five weeks ago to 30% last Friday: This is the probability distribution chart for interest rates in the United States in December 2024: Up until last Friday, the mainstream belief in the market was that the United States would cut interest rates 3-4 times this year (the probability of only two rate cuts has dropped to zero), or about 0.75%-1%. More than a month ago, the market believed that there was a 64.9% chance that rates would drop to 4.50%-4.75% by the end of the year, but now this probability has dropped to 8.7%. The market believes that the pace of rate cuts in the United States will be more aggressive than the previous week, with the probability of cutting rates to 4.00%-4.25% increasing from 21.8% a week ago to 42.7%. This adjustment in the market's expectations for US interest rates this year once again confirms the saying that after a long period of validation, futures markets' predictions about US interest rate trends, especially long-term expectations, are generally wrong. The economic data in the United States is not the main reason for market fluctuations. However, as has been emphasized, the clear downward trend in the market suggests gradually reducing exposure to risky assets. Clear signs include: The Gold-Silver Ratio and the US Dollar Gold Price/North American Gold Mining Stock Index have already confirmed their bottom and rebounded, reflecting an increase in market risk awareness. The US Department of Labor revised downward the number of new jobs added in the past year, indicating that the market misjudged the economic environment in the United States. Baron has announced that they have been continuously reducing their holdings in Bank of America since mid-July, holding a large amount of cash. It is clear what Baron's view on US stocks is. Individual investors bought $5.9 billion worth of Nvidia stock in August, reaching a historic high (compared to May, individual purchases exceeded 600%). It is clear that funds and company management are selling off, and individual investors are buying at high levels. In fact, making money in the investment market in the long term is not too difficult. Besides being bold, observant, and quick to react, it is about following the crowd in good times and making a counter-human move before turning points. In foreign markets, there is also the possibility of making money in rising or falling markets. Unless the Fed cuts by 50 points on September 18th, cutting by only 25 points is likely to trigger the traditional investment wisdom of "buy on rumors, sell on news". After all, Western markets had already started deploying rate-cut trades in the first half of 2023, and it was time to profit. In other words, US stocks may have peaked this month (if Trump is re-elected, there may be a honeymoon period of about half a year for US stocks), and gold may become an ATM, pulling down gold prices when the stock market falls. However, at present, whenever gold prices drop sharply, funds clearly flow into buy at lower levels. The biggest challenge in the next 12 to 24 months will be if the United States starts cutting rates, but inflation pressures resume an upward trend, where will the Fed go? Do not ignore the possibility of the situation in the Middle East turning bad at any time, and do not rule out the possibility of Central Banks responding to the Middle East situation and deploying gold earlier. Although the local currency has appreciated recently, this is only a transitional reversal after the strong US dollar caused a squeeze in transactions. Especially although there was a rebound in environmental protection stocks last week, it is inclined to believe that this rebound is just hype/enticing more funds to enter the market, so personally I suggest taking advantage of this rebound (but not sure how long it will last) to gradually reduce exposure to risky assets and stay profitable.