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Approaching 730, will the "unleashed" gold continue to rise?

author:Brother Bird's Notes

Source: Discovery Report

Crazy, crazy, the price of gold has gone completely crazy!

Thinking back to 2013, there are still people who laugh at the Chinese aunt who is crazy about grabbing gold, and now I can't wait to travel back to "buy, buy, buy" and "hoard", and use my strength to deduce what it means to "question the aunt, understand the aunt, and become an aunt"!

After all, the gold price of "love to ignore" was only more than 200 back then, and now the gold price that is close to 730 is really "unaffordable".

What is it that makes the price of gold soar like a wild horse, and how long will the "gold rush" continue in the future?

Rise to the magical domestic and foreign gold prices

Looking back on 2023, after the price of gold rose volatilely, most of the market expected that 2024 would hit a new high, but no one expected it to come so soon.

Since the beginning of March, gold prices at home and abroad have begun to rise rapidly, just like the house in 2016, one price a day, outrageous and amazing.

The price of gold futures in New York rose by 9.8% in March, the largest monthly increase in more than three years! After entering April, it was even more crazy, and on April 9, it rose by more than 1% in one day, hitting a record high of $2,362.24 per ounce.

Domestically, from March 20 to April 8, the main contract of Shanghai Gold has achieved "12 consecutive rises", with a cumulative increase of 9.71% during the 12 trading days.

Compared with the rise in international and domestic futures gold prices, the surge in domestic gold jewellery prices has brought more intuitive feelings.

Approaching 730, will the "unleashed" gold continue to rise?

Represented by Chow Tai Fook, the price on March 1 was still 630 yuan/gram, and on April 10, it rose to 728 yuan/gram, and the price of gold per gram rose by nearly 100 yuan in more than a month.

To put it bluntly, it is equivalent to spending nearly 10,000 yuan more to buy 100 grams of gold jewelry this month than last month! Thinking about the gold price of about 530 yuan in the spring last year, it is really only a coincidence that I bought it early and did not buy it, and I feel that I have missed 100 million.

The magical price of gold has also led to an increase in the gold recycling market and gold jewelry-related companies.

According to Tianyancha data, as of now, there are more than 29,000 related enterprises related to gold jewelry, and from January to March this year alone, there are more than 150 newly registered related enterprises, an increase of 70.5% compared with the same period in 2023.

Why is the price of gold rising?

So what is it that makes the price of gold on a rocket?

First of all, the traditional analytical framework with the US dollar real interest rate as the core is not fully applicable to the current round of gold price rally.

Approaching 730, will the "unleashed" gold continue to rise?

The traditional framework considers gold prices to be mainly affected by the US dollar index, real interest rates (US Treasury or TIPS yields), interest rate cut expectations, and risk aversion.

The US dollar, as the main "pricing currency" for gold, has a negative correlation with the price of gold in most cases. When the dollar is strong, the gold price will be suppressed, and if the dollar system is unstable, the gold price will rise.

Approaching 730, will the "unleashed" gold continue to rise?

The real interest rate on U.S. Treasury bonds is another factor that is highly negatively correlated with the price of gold, and when the real interest rate falls, the price of gold rises accordingly.

In addition, gold, as the only super-sovereign currency, does not need the credit endorsement of the central bank, is an internationally certified "hard currency", naturally has hedging properties, in the outbreak of geopolitical conflicts or economic and financial instability, it will stimulate the hedging properties of gold, and also make the price of gold rise.

However, in the past two years, changes in the geopolitical situation + high interest rate environment have led to the weakening of the explanatory power of the old gold pricing system, and the new gold pricing mechanism with central bank gold purchase as the core variable is gradually emerging.

On the one hand, the Fed continued to expand its balance sheet after the epidemic, and the debt problem led to "cracks" in the credit of currencies such as the US dollar, and the "de-fiatization" attribute of gold was highlighted.

On the other hand, since 2022, the substitution effect of gold as a "zero-coupon bond" on bonds has weakened, and the sensitivity of gold to the real interest rate of U.S. bonds has decreased significantly, and it will be almost "irrelevant" from 2023.

Although gold's position as a safe-haven asset has been further consolidated in an environment of continuous geopolitical risk disturbance, it is often only a phased factor and cannot maintain the continuous improvement of gold prices.

The continuous increase in gold reserves by global central banks has become an important factor driving the price of gold.

Since 2022, global central banks have not abated in their purchases of gold. According to the World Gold Council, global central banks will buy 1,037 tonnes of gold in 2023, with China, Poland and Singapore ranking among the top three in the world.

According to the latest data, the central bank's gold reserves in March were 72.74 million ounces, up 160,000 ounces from the previous month, marking the 17th consecutive month of increasing gold reserves.

In the future, increasing the proportion of gold in foreign exchange reserves will still be the choice of many central banks, behind which is the concentrated embodiment of the demand for "decentralization" and geopolitical hedging.

The central bank will become a major player in the gold trading market, and become the background color of the long-term upward trend of gold prices.

Will it continue to rise?

Is there room for gold prices to rise in the future?

In the short term, Guosheng Securities believes that gold will experience an adjustment after rising for about 1 month at most.

Throughout the historical cycle, gold will experience a period of significant adjustment after breaking new highs, starting from a few days after breaking new highs, and slow starting from 2 months after breaking new highs, and this round of gold has been breaking new highs for more than a month.

In addition, from the perspective of futures and options positions, the current long-short ratio of gold has reached the highest value after the new crown, which is higher than the level of the Russia-Ukraine conflict, the Palestinian-Israeli conflict, and the Silicon Valley Bank crisis, which also reflects that long gold trading has been more crowded. In the future, if the bears stop entering the market and the bulls gradually take profits, there may be a "more kill more" decline.

In the long run, Debang Securities believes that gold prices have a long-term upward basis.

First of all, in the context of global elections in many countries, the reshaping of the global industrial chain, and the intensification of the game between major powers, the central bank's willingness to hold gold is expected to remain high due to the demand for safe-haven needs.

Second, in the context of the exposure of some financial risks and the gradual implementation of the "reverse reversal operation", the real US Treasury interest rate is expected to fall, which is also good for transactional investment anchored in the real interest rate framework.

However, it should be noted that if the current round of the United States successfully replicates the interest rate cut + soft landing in 1995-1996, and at the same time finds a new economic driving force under the transformation of the AI industry, then gold may usher in an adjustment.

Finally, to sum up, even if in the short term, gold prices may fluctuate slightly, but in the long run, gold prices still have considerable room to rise, and the scale of gold purchases by the central bank will become one of the most important tracking indicators in the future.

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