Has the price of gold plummeted? So why did it rise to the sky in the early stage?

Three-fold life

2024-05-13 20:59Posted in Shanghai Finance and Economics Creators

This article is jointly produced by ICBC Credit Suisse Investment Education Base, ICBC Private Bank, and Trifold Life.

Didn't you have a feeling some time ago,

The gold has gone up to the sky!

Today we're going to talk a little bit about gold.

The chemical symbol of gold is Au, and the English code for finance is XAU or GOLD.

The name Au is taken from Aurora, the goddess of dawn in Roman mythology.

The name Aurora is the first light of night turning into day in Greek, and it also represents the shining dawn.

When humans discovered gold, they thought that gold had the same color as the sun's rays, so they used the first two letters of the goddess's name (Au) as a synonym for gold.

For a long time in human history, gold was used as currency.

As a great man once said: .

Why did gold naturally choose as a currency?

This is mainly determined by the properties of gold.

First of all

Gold is scarce, making it valuable

secondly

Gold does not decay and deteriorate, and it is not easy to lose value during preservation.

So the value will be relatively stable

again

Gold has a uniform texture and is easy to divide and measure, making it easy to exchange with commodities of different values.

Based on these characteristics,

What could be better in nature to act as currency?

But gold also has drawbacks,

For example, it is heavy and difficult to carry, the cost of mining and refining is high, and the reserves are limited, which cannot meet the rapid development of the economy

Thus, paper money that relied on the credit of the state was created

However, even when paper money was created, there was a time when gold was used as an anchor for monetary pricing.

The Bretton Woods system, established after World War II, pegged the U.S. dollar to gold at a fixed exchange rate of $35 per ounce.

The U.S. dollar, backed by gold, played a huge role in the world's economic circulation at that time, and also made the U.S. dollar the most important international reserve currency

Until the collapse of the Bretton Woods system in 1971,

The US dollar is decoupled from gold.

But gold is still considered a special asset and is denominated in US dollars.

But with the unlimited printing of dollars, the dollar has gradually become a numbers game. In the event of inflation, people will be more willing to hold gold as a safe-haven asset.

As a result, the U.S. dollar and gold generally have an inverse relationship.

When the dollar strengthens,

When the dollar weakens, it's a different story

And gold as an asset,

There is generally no interest, which becomes the cost of holding gold

As a result, gold is also negatively correlated with real interest rates.

When the real interest rate is higher,

The higher the rate of return on investing in other interest-bearing assets relative to gold, the lower the price of gold.

When the real interest rate is lower,

The lower the return on investing in other interest-bearing assets relative to gold, the higher the price of gold will be.

Of course, the actual situation will be much more complicated, and this correlation relationship is not absolute, and will deviate with external circumstances

So why has the price of gold soared recently?

There are several reasons for this:

1. Geopolitical conflicts

The world is not peaceful, such as the Russian-Ukrainian war, the Palestinian-Israeli conflict, the Iran-Israel dispute and other places are full of gunsmoke

In this case, the demand for gold, as a safe-haven asset, naturally increases

Central banks share this concern.

Guess who the biggest buyer of gold in the world is?

Central banks have massively increased the proportion of gold reserves, pushing up the price of gold.

At the same time, some speculative capital also took advantage of the influx of capital, and the price of gold rose further.

2. Expectations of US dollar interest rate cuts

According to market forecasts, the US dollar may enter a phase of interest rate cuts in the future.

As we said earlier, gold has a negative correlation with the US dollar. When the US dollar weakens, the price of gold has an upward momentum.

Moreover, the collapse of many banks in the United States some time ago, and even the emergence of a credit crisis, have also increased concerns about a hard landing for the U.S. economy, prompting gold to become more attractive

in a word

It was a combination of factors that led to the continued surge in gold prices during that period.

Recently, however, the price of gold has seen another series of sharp declines.

The main reasons are as follows:

Where is gold headed in the future? No one can say.

The market is risky, investment should be cautious, this article does not constitute any investment advice.

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