From the subprime mortgage crisis in 2008 to 2012, the price of gold rose by nearly 250% to about US$800 to US$1,825 per ounce. However, after a four-year rally, 2013 saw a decline, when the price of gold fell by more than 30% from its peak, and the gold market was depressed, and then the price remained relatively low for six years. Now, four years after the start of the pandemic in 2020, the price of gold has risen by 70% to about $700 to $2,400 an ounce. What is the difference between the current gold boom and 2013? After a four-year rally, will gold continue to rise in 2024, or will it stop there?
Gold: Corona = Subprime Mortgage Mortgage Crisis in the United States in 2008 in response to the crisis. The Federal Reserve, the European Central Bank, the Bank of England and the Bank of Japan have all begun to implement quantitative easing. During this period, the U.S. dollar index remained volatile overall, while downward pressure on the economy pushed real interest rates further down to around 0%, prompting a new bull market in gold, which rose from around $730 in October 2008 to $1,300 in October 2010. In 2010-2012, the European sovereign debt crisis was affected by the economic crisis, which raised concerns about the stability of the eurozone and the global economy. In August 2011, the gold price hit a nominal high of around US$1,825. Because of this, the price of gold is highly correlated with the balance sheet of central banks, especially the Federal Reserve. It also dominates the analytical framework for gold after 2008. This is precisely the core reason why gold prices are "incomprehensible" after the Fed shrinks its balance sheet in 2024.
How did gold collapse in 2013?
1. The U.S. fiscal deficit continued to improve, and the U.S. economy gradually recovered after the Federal Reserve opened the tapering in June 13 in 2008. The real deficit in the United States has shrunk rapidly, reaching its lowest level in five years.
And because of the potential for future massive inflation and concerns about other risks, in May 2013 Bernanke published his famous Tapering Talk, proposing a gradual reduction and eventual exit from QE. 2. The overdraft effect of China's "DAMA" In 2012, China's DAMA "" was out of the circle, and the rising gold speculation fever made the global carnival and greatly increased the speculative demand for gold. Domestic demand in 2013 was 1811.14 tons. Domestic demand rose 58.68% y-o-y, with an increase of 767.34t, the fastest growth since the opening of the gold market. Domestic gold demand is divided into six areas. Among them, the amount of gold used in jewelry manufacturing accounted for the first place, the inferred net investment gold accounted for the second place, and the gold used for small gold bar hoarding accounted for the third place. These three used a total of 1,779.93t, accounting for 98.28% of total demand. (China Mining Association)
42.82% of domestic gold demand, or 775.6 tonnes, was commodity gold demand, and investment demand was 1,035.54 tonnes, accounting for 57.18%. The ratio of demand for gold commodities to investment demand is about 1:1.34. In 2013, the proportion of investment was nearly halved year-on-year, and the gold speculation finally ushered in a temporary cooling-off period due to the sharp drop in gold prices and the failure of DAMA attempts to buy the bottom. 3. Changes in Japan's monetary policy. After Haruhiko Kuroda took office at the Bank of Japan in 2013, the Bank of Japan (BOJ) has been in full swing to support Abenomics, with the goal of boosting Japan's inflation. Under such extreme policies, the volatility of Japan's bond market increased sharply. In that year, many institutions sold gold to make up for the margin loss on Japanese government bonds.
4. European debt countries sold gold to repay debts In 2013, the European debt crisis intensified. Cyprus sought aid, but the eurozone government, led by Germany, remained very hawkish, imposing harsh conditions attached to the bailout, which led to the Cypriot government having to announce that it would raise some of the bailout funds by selling 10 tonnes of gold reserves. The Cypriot government's move has stimulated the imagination of the market, as the southern European countries currently in the midst of a European debt crisis hold significant gold reserves, especially the Italian government's gold reserves of more than 2,000 tonnes. If in the future eurozone countries will raise funds by selling their gold reserves, this will undoubtedly greatly depress the price of gold.
From the analytical framework of gold, the QE represented by the subprime mortgage crisis in 2008 is an important watershed. The performance of gold prices so far this year is also a challenge to the past framework. Many people can't understand it. Now to sum up, the main aspects are as follows: