introduction
So far, the international gold price has broken through the $2,000 mark, rising to $2,372.5 per ounce. Gold prices rose 6% in a single week in March, hitting a record high.
If the Chinese aunts who bought the bottom of American gold 10 years ago still held these spot prices and did not sell them. Now they will not only be able to unbundle, but they will also be able to reap a good return on their investment.
At the same time as the carnival of gold speculators, some people are also caught in endless worries, as the saying goes, antiques in prosperous times, gold in troubled times. The soaring price of gold is often a sign that something big is about to happen.
So, what is the message behind the increasingly outrageous trend of global gold prices, and is there any basis for such fears?
Conflicts or anticipated conflicts cause gold price volatility
First of all, people's concerns are mainly based on this reality.
That is, as a globally recognized hard currency, gold's value can be recognized by the world for most of the time, so it is often used as an excellent choice for international capital as a hedge.
Compared with currencies issued by other countries, the purchasing power of gold is relatively stable, and although the price rises and falls from time to time, it has always maintained a strong and unyielding purchasing power.
It will not be like paper money, which will be degraded to the end and left with nothing. What's more, in human history, there was gold first, and then currency, and gold has always been a symbol of dignity and sacredness.
Currencies are essentially nothing more than a piece of paper or a cheap copper-nickel alloy, which has no financial value in itself, and is the guarantee of a country's sovereign credit, which gives them value.
Wars often cause disorder in the country's financial and financial systems, and even the loss of sovereignty. Therefore, whenever troubled times come, the rich men of Europe will exchange paper money for gold, and then sweep away the fine and soft to the United States.
In addition, in order to collect war materials from the private sector as soon as possible, the government often overdraws its sovereign credit and issues a large amount of currency, which further exacerbates the depreciation of the currency.
Historically, the Gulf War, the Iraq War, and the Libyan War have all caused gold prices to rise to varying degrees.
The haze of war has made gold the patron saint of investors.
History tells us that in times of war, gold's safe-haven properties multiply its value. When the smoke of war is ignited, people's savings, wealth management funds, and stocks will face a serious contraction.
Gold, as a physical asset, with its stable chemical properties and high financial value, can provide investors with a long-lost sense of security during turbulent years.
Looking at the current situation in the world, why is it not on the eve of turmoil?
War is not far from us. On the Middle East side, a geopolitical crisis has erupted, the Houthis have blocked the Red Sea, the United States has sailed warships into the Indian Ocean, and Iran has stockpiled weapons and ammunition in its bunkers, ready to do a big job at any time.
On the side of Russia and Ukraine, the conflict has escalated, bombing each other's several military positions, and recently there has been a horrific terrorist attack.
After the incident, the Russian side successively came up with evidence pointing at the United States and the West. Of course, the United States vigorously denies this.
However, no matter who is behind the scenes, since Russian officials have insisted that the deaths and injuries of civilians are related to the United States and the West, how can this matter be easily turned over?
As a result, some people on the Internet began to be alarmist and spread tension. It is only a matter of time before the "third season" has begun, and the Russian-Ukrainian conflict escalates into a continental war.
They believe that the panic of war is the direct cause of pushing up the global gold price. After all, gold has to be bought to get a high price.
And those big entrepreneurs who buy gold, the channels of access to information must be more well-informed than we ordinary people, they have exchanged dollars for gold, what reason do we have not to copy?
As a result, under the urging of the sense of crisis, the price of gold rose again and again, and the overall trend was quite magical.
The real reason for the rise in gold prices is the weakness of the US dollar
So, is this really the case? It can only be said that we should resist this kind of rhetoric that spreads panic and disrupts the financial order.
Because, the third war will definitely not start, and the rise in gold prices may be more related to the global wave of de-dollarization. This is based on historical experience.
Historically, the impact of the war on the price volatility of gold, especially in the long term, has been very limited, at least far less than we think.
The variable that really affects the price of gold is people's expectations of the US dollar. When people think the dollar has a positive outlook, they deposit money in American banks.
When people think that the United States is unreliable, they sell dollars and invest in gold. Overall, gold and the US dollar show a negative correlation.
Take, for example, NATO's involvement in the Libyan civil war in 2011. At that time, almost everyone could have predicted that Gaddafi would become the next Saddam.
But no one can say how long this battle will last, how big the scope will be, and whether the US military will stay there after the fight.
And these factors are closely related to the fluctuation of the value of the US dollar, because once the United States is caught in a protracted war, or an endless war of law and order, it will print money frantically and issue government bonds indiscriminately to maintain its military spending.
In order to maintain and appreciate the value, international capital can only exchange the US dollars in their hands for gold, which is why in the early days of the Libyan war, the international gold price will rise by 20%.
From this incident, we can see that the behavior of international capital investing in gold is more for profit-seeking, rather than for risk aversion.
After all, during the Libyan war, the global situation was generally peaceful, and a local war would not lead to an aggravation of the international security situation.
International capital gave up the dollar and chose gold purely because it felt that the dollar was unreliable for the time being.
The same is true now. The dollar system is becoming less and less optimistic, and people are becoming less and less trustworthy in the United States. Why?
First of all, the reason why the US dollar has a strong value and liquidity in the past is strong.
Mainly because the dollar is pegged to oil. The dollar can be pegged to oil because of the military influence of the United States and the global hegemonic system.
But now, there are signs that the US military influence in the Middle East has been greatly weakened, and oil is decoupling from the dollar.
For example, in recent months, several US military bases in the Middle East have been bombed by Iran one after another, and US aircraft carriers have been beyond their reach.
In addition, Israel, the most critical military ally of the United States in the Middle East, has recently become the target of public criticism because of the Palestinian issue, and has been spurned by more and more Middle Eastern countries.
As the proxy of the United States in the Middle East, Israel's survival is directly related to the longevity of the dollar oil system. Israel's embarrassing situation shows that the prospects for the dollar oil system are not optimistic.
At the same time, U.S. leadership in other areas of the world is weakening. In this context, gold, as a borderless asset, has naturally become the focus of investors' attention.
Both individuals and countries want to add a layer of security to themselves by holding gold.
Second, the United States is in a debt crisis, and the liquidity of the US debt is drying up, and it is only a matter of time before the dollar collapses.
According to the latest data, the size of the US debt has exceeded 34 trillion and is still snowballing at an alarming rate.
This is an indication that there is a great deal of risk to the sovereign credibility of the United States. Currencies issued on the basis of U.S. sovereign credit are equally problematic.
In addition, the dishonesty of the US dollar is also reflected in the Russia-Ukraine conflict.
At the beginning of the war, Russia's dollar assets deposited in European banks were frozen by the United States, and Russia's use of dollars for international transaction settlement was prohibited when the United States said it was forbidden.
By doing so, the United States is undoubtedly smashing its own signboard. Under the manipulation of the United States, the dollar has lost its impartiality and neutrality as a currency, and has been used as a political weapon that can be abused at will.
Russia's experience has made more and more central banks gradually realize the possible financial risks of holding US dollars.
As a result, they sold off the dollar and chose gold as a strategic reserve, which has a higher retention rate. Therefore, the price of gold is bought high by central banks.
The data speaks for itself, as of February this year, central banks have increased their holdings of gold for nine consecutive months.
In particular, China's official gold reserves have achieved 17 consecutive months of growth, with a cumulative increase of more than 10.1 million ounces.
Since the beginning of 2024, the dollar's instability has not been significantly reduced. Therefore, reducing the US dollar and increasing the gold holdings are still the general trend of central banks.
epilogue
In short, the soaring gold price reflects the fragility and uncertainty of the global economy.
As the war continues to escalate, economies are facing enormous challenges. The boom in the gold market has become an important way for investors to seek safe haven.
At the same time, it also reveals the shaking of the dollar's position. As the U.S. economy and global leadership weaken, confidence in the dollar is gradually eroded.
And gold, as a borderless asset, is gradually becoming the new favorite in the eyes of investors. However, we also need to note that the rally in gold prices is not without risk.
Once the global economy returns to stability, the price of gold will also level off.
Therefore, when investors invest in gold, they need to pay close attention to market dynamics, carefully analyze the market situation, and avoid blindly following the trend to deal with possible risks.
Resources:
1. Dou Dapeng.Rational view of the rise in gold prices[J]Economic Daily 2023-06-12