Gold is going crazy, do you dare to get in the car?

Everyone, witness history again.

The international gold price continued to soar, and every day was a record high, rising 5.35% in the last six trading days alone, once reaching $2286.4 per ounce.

This kind of rise has never been seen in most people's lives.

All, most people have missed this wave of the market perfectly.

In the past few years, some friends have always persuaded me to make gold, but unfortunately I don't have enough courage and refuse every time.

Without him, who would dare to go up like this?

The more it rises, the more afraid it is, the more afraid it is, the gold market in recent years is like this.

The fundamental logic so far simply cannot explain such an exaggerated increase.

It's weird.

In the same way, how to go in the next step cannot be judged by common sense.

We need imagination.

Just because you haven't seen it doesn't mean it won't happen.

01

"Risk aversion" is not obvious

In recent history, gold has undergone two major shifts.

In 1931, the largest international monetary bloc, the British Pound Group, including the members of the British Empire, as well as Sweden, Norway, Denmark, Finland, Portugal, Greece, Argentina, Brazil, Colombia, Paraguay, Bolivia, Thailand, Iran, Egypt, etc., abandoned the gold standard.

Gold's function as a currency has been greatly diminished.

In 1973, the Bretton Woods system collapsed, the US dollar was officially decoupled from gold, and the world entered the era of credit money.

Since then, gold has ceased to be legal tender, but it is still the last means of payment, and its storage properties have not changed.

After these two events, the price of gold rose by as much as 70% and 430% respectively in a short period of time.

Especially after the US dollar was untied from gold, in the 50 years from 1974 to 2023, there were 28 years in which the gold price rose, accounting for 56%.

The maximum annual increase was 126%, and the average increase was 8.48%.

So from a long-term perspective, the rise in gold prices is itself a high probability event.

For investors who are looking for a stable and long-term asset allocation, gold has always been a good choice because of its low correlation with bonds and stocks.

But when you break it down into different time periods, this is not the case.

In 1971, the Bretton Woods system demanded a gold price of US$35 per ounce, which was clearly unreasonable.

So after the ban was lifted in 1973, the price of gold, which had been artificially suppressed, quadrupled in just two years.

Subsequently, countries were hesitant to adopt a floating exchange rate, and gold experienced a three-year market-oriented game. By 1980, the price of gold had quickly surged to $850 an ounce, but it had quickly halved.

Obviously, with the purchasing power at the time, the price of $850 was also unreasonable.

So, how much does the price of gold need to be reasonable?

Looking at the chart below, in the 80s and 90s, for 20 years, the price of gold basically fluctuated between $300-400 per ounce.

During this period, there were major events such as the Latin American debt crisis, the Iran-Iraq war, the Lebanese war, the Gulf War, and 911.

However, it does not affect the overall trend.

Why is this happening?

What's more, logically speaking, the 80s and 90s were the climax of the Cold War between the United States and the Soviet Union, and geopolitical relations were very tense, and the demand for hedging could not be low.

Especially after the collapse of the former Soviet Union in 1991, in the context of such a huge historical change, gold, as a synonym for hedging, still did not rise but fell.

This doesn't conform to our knee-jerk conventional logic, but it's true.

Historical experience tells us that geopolitical wars do have an impact on the price of gold, but it is very short-lived.

For example, during the war in Afghanistan in 2001, the price of gold peaked almost on the day of the war and then began to fall.

Therefore, the geopolitical war is not a strong support for the rise in gold prices, it only provides an opportunity for large capital to short the price.

What is the result of such a decades-long adjustment? The price of gold has been artificially and seriously undervalued over a long period of time.

02

The biggest impetus for the rise

From the current perspective, gold has experienced a super bull market from 2001 to 2011, and another big bull market since 2018, which seems to have risen rapidly.

Many people are panicking, wanting to get in the car but worrying about buying at the highest point.

But on the other hand, how much should the true value of gold be?

From 1980 to the beginning of this century, prices in the United States rose by a factor of five?

What about the price of gold over the same time period?

Especially after 1980, gold has continued to depreciate, in stark contrast to rising prices in the world's major economies.

For example, if you buy $1 million of gold at a price of $600 per ounce when everyone thinks that gold will maintain and increase in value and rise well in 80 years, you expect to be able to retire with a return on investment.

At first, the price of gold is quickly at $850, and you are overjoyed, but soon you want to cry.

Ten years later, that $1 million shrank to $600,000, and another 10 years later, only $400,000 remained.

It wasn't until 2006 that the market value of your gold holdings returned to $1 million.

But is $1 million the same thing as $1 million 26 years ago? Purchasing power has shrunk by at least 80 percent.

At least before the last bull market, if people say how much gold retains its value, how strong its anti-inflation and safe-haven properties are, others will only treat you as a fool.

The year 2000, before the dot-com bubble burst, was the peak of the global stock market after World War II.

On the contrary, gold prices are at the tail end of a bear market at this time.

In 1999, the price of gold reached its lowest point.

In order to prevent the collapse of the gold price, the ECB signed the Washington Agreement with the 14 countries of the European Union, which decided to sell gold over five years, with a limit of 400 tons per year.

This was followed by 911 and the Iraq War in 2001 and 2003.

Although gold prices have been briefly supported each time, they still cannot get out of the super bear market that has lasted for more than two decades.

When was the real turning point? 2006.

From 2006 to February 2008, as the U.S. housing bubble rapidly expanded, the price of gold rose to $1,000.

But then Lehman Brothers hit the streets, the bubble burst, nearly 50% of the world's stock prices evaporated, and the price of gold also quickly plummeted.

Between 17 July and 17 November 2008, the price of gold fell 23% in four months before starting to rise inexorably.

This round of trends, the ups and downs are extremely large, and it is completely different from the lifeless gold market after the 80s.

Because in order to deal with the subprime mortgage crisis, in order to save the market and maintain economic stability, countries frantically printed money and put a huge amount of money into the market, such as the United States' QE, Europe's national debt plan low interest rate policy, Japan's QE and QQE and other monetary easing policies, all of which were products of the subprime mortgage crisis that year.

Including China, a 4 trillion plan, the real estate bull market started.

Against the backdrop of a flood of currencies, credit currency depreciation is worth rapid.

In contrast, gold soared until September 5, 2011, when it reached $1,917.9.

In November 2012, the gold bull market came to an end and entered a long and protracted 10-year decline.

During this period, there was no shortage of political friction and small geopolitical wars in the world, but it was simply not possible to save the downward trend in gold prices.

This once again shows that gold's hedging effect on war is really not obvious.

At least this century, gold prices have been linked to only three factors: inflation expectations, nominal interest rates, and global central bank purchases.

The first two, the underlying logic, can perfectly explain the 2007-2011 bull market cycle, but this time it is clearly different.

The starting point of this round of gold bull market was in July 2018, when gold bottomed out at $1,167.1 in New York.

After that, the rampant upward mode was turned on all the way.

During this period, the Federal Reserve also started a round of aggressive interest rate hikes, but gold prices only fluctuated for a while, and then continued to move forward.

In fact, since then, the cliché logic of the dollar rising and gold falling has become invalid.

It's not that the logic is wrong, it's that someone has been hoarding a lot of goods for a long time. When there is less spot on the market, the price will naturally rise, which is the most primitive buying and selling logic.

According to the disclosed data, there are two largest buyers, one is PBOC (Central Bank of China) and the other is RCB (Central Bank of Russia).

As long as the trend of "de-globalization" and decoupling does not ease, China and Russia's efforts to de-dollarize will certainly not stop, and the frenzied hoarding of gold will certainly continue.

This is the strongest fundamental of this round of gold bull market.

Of course, in addition to the central bank's rush to buy, there are two other factors that cannot be ignored.

Let's start with inflation expectations. At present, the 5-year expected inflation rate is 2.22%, which is a correction from 2023, but it is still in a benign range of more than 2%.

Looking at the nominal interest rate, the general direction is to start a downward path. The Fed is undoubtedly coming to the end of its rate hike cycle, and while the 10-year Treasury yield has retreated, there is some expectation of a rate cut, but it is far from sufficient.

Next, gold prices may not continue to soar as in recent days, and it is normal to pull back if it rises more.

However, the above factors have combined to determine that the long-term market of gold is not over.

03

End

For ordinary people, the price of gold is the simplest and most straightforward indicator.

If the price of gold continues to fall, it means that it is a good year, and we can be bold to start a business, take out loans, and be bold to try and make mistakes.

Because the depreciation of precious metals must mean that other assets are appreciating.

Either real estate is rising, or the stock market is rising, and the economic growth rate is booming.

In the first 20 years of the Internet era, this was the case, and there were many ways to make a fortune and invest in any industry.

In the past two years, we can clearly perceive that the times have changed, and we can no longer be as unrestrained as before.

We have to be more cautious.

Gold is the only legal and compliant global allocation asset that most people in China can access.

In these uncertain times, it is at least a relatively certain choice. (End of full text)