CFIC Introduction
◆ Analysts believe that this round of gold price rises is affected by multiple factors such as the Fed's increased expectations of interest rate cuts, intensified geopolitical risks, and central banks and investors continue to buy gold to hedge risks. Although there is some uncertainty about the future trend, overall, gold prices are likely to remain strong for some time to come.
Original title: [Financial Analysis] Affected by multiple factors, gold prices are expected to remain strong
From the 12th to the 13th, the spot gold price rose significantly, hitting record highs in a row. Analysts believe that this round of gold price rises is affected by multiple factors such as the Fed's increased expectations of interest rate cuts, intensified geopolitical risks, and central banks and investors continue to buy gold to hedge risks. Although there is some uncertainty about the future trend, overall, gold prices are likely to remain strong for some time to come.
Spot gold prices have repeatedly refreshed all-time highs
Following the closing price of London gold on September 12 rose 1.85% to refresh the historical closing high, the international gold price continued to rise on September 13, and London gold now rose as high as $2586.28 per ounce. Analysts believe that this is related to the recent announcement of interest rate cuts by the European Central Bank. On the 13th, the quotations of major domestic brand gold stores also rose significantly, and the price of Chow Sang Sheng's gold reached 762 yuan per gram, an increase of 0.13% from the previous day; The price of Chow Tai Fook gold reached 758 yuan per gram, up 1.61% from the previous day; The price of Chow Tai Sheng's gold reached 758 yuan per gram, up 1.61% from the previous day.
Historically, gold prices have shown a certain cyclical nature, and these cycles are related to various factors such as the global economic cycle, monetary policy, and geopolitical risks.
In the 70s of the last century, United States then-President Nixon announced the decoupling of the dollar from gold, the Bretton Woods system collapsed, the global monetary system was in turmoil, and the price of gold rose sharply. At the beginning of 1970, the price of gold was only US$35 per ounce, but in January 1980 it had risen to US$850 per ounce, an increase of 2,328%.
In the 80s of the last century, the global economy gradually recovered from the high inflation of the 70s of the 20th century, and the monetary policy tended to be stable. The Federal Reserve adjusted interest rates several times during this period to control inflation and overheating the economy. The price of gold has fallen significantly, falling to US$386 an ounce in 1990, a 55% drop from January 1980.
In the 90s of the last century, with the end of the Cold War and the acceleration of economic globalization, the global economy, especially the United States economy, entered a relatively stable period, and the price of gold was relatively stable, showing a slight decline in fluctuations, and its price fell from $386 per ounce in 1990 to $273 per ounce in 2000.
Entering this century, with the financial crisis and geopolitical tensions in many parts of the world, the price of gold has continued to rise again. Between 2001 and 2011, the London spot gold price rose from US$256 per ounce to US$1,895 per ounce, an increase of about 640%.
After 2012, the price of gold entered a period of high volatility. Gold prices retreated after reaching a high of $1,747 an ounce in 2012, but rose again after the United Kingdom referendum in 2016, breaking through an all-time high of $2,073 an ounce in August 2020.
Heightened expectations of a Fed rate cut drove gold prices higher
The analysis pointed out that the direct reason for the sharp rise in gold prices this time is that the European Central Bank's interest rate cut has strengthened market expectations for the Fed's interest rate cut, after the Bank of Canada cut interest rates by 25 basis points for the third time in a row on September 4.
According to the released economic data, the United States PPI rose 1.7% year-on-year in August, the lowest since February this year; The month-on-month increase was 0.2%, which was basically in line with market expectations. The Fed is widely expected to cut interest rates at its September 18 meeting, which will reduce the opportunity cost of holding gold and attract more investors to buy it, which will push gold prices higher.
In addition, the continued gold purchases by central banks around the world are also one of the important factors supporting gold prices. According to recent statistics released by the World Gold Council, global central banks bought 483 tonnes of gold in the first half of 2024, setting a new record. This trend is expected to continue for some time to come, providing some support for gold prices. Since November 2022, mainland central banks have increased their holdings of gold for 18 consecutive months.
Gold prices are expected to remain strong for some time to come
The analysis points out that when global economic growth slows or uncertainty increases, investors often seek gold as a safe-haven asset, pushing gold prices higher. Conversely, if the global economy performs well, investors may turn to riskier assets, leading to lower demand for gold and lower prices.
With the continuous occurrence of geopolitical events such as the Russia-Ukraine conflict and the Palestinian-Israeli conflict, the market is high in risk aversion, and investors have turned to safe-haven assets such as gold. This trend is likely to continue for some time to come, especially in the face of an unstable global political and economic environment.
Despite the strong performance of some economies around the world, the overall economic growth outlook remains uncertain, and many investors may still choose to buy gold to hedge their risks. There is still uncertainty about the future price movement of gold.
Source of this article: Xinhua Finance
Author: Zhang Xinxin
WeChat editor: Wang Qian
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