Why does the price of gold continue to rise？ Looking back, is gold investment still attractive？
Recently, the price of gold has climbed again, and both international and domestic gold prices are setting new historical records. On March 6th, London spot gold and COMEX gold futures stood at the $2,100/oz mark in succession, and the domestic gold price also exceeded 500 yuan/g..
Not only ordinary people are buying, but also central banks are increasing their holdings of gold. Take China as an example. As of February, the Bank of China has purchased gold for the 16th consecutive month, with a total gold reserve of 72.58 million ounces.
After the gold price market, investors are also in a dilemma. For investors who have already started, should they sell now? For investors who have not yet participated, is it still too late to buy?
Why has the price of gold risen recently?
First of all, there are several reasons behind the recent rise in gold prices:
1. American primary and secondary schoolsRisk event
Recently,Have a huge loss,Two major rating agencies, Fitch, have lowered their ratings. The market’s concern about the risks of regional and commercial real estate in the United States has resurfaced, which may become the fuse for the current round of gold prices.
As of January 2024,The scale of commercial real estate loans is 2.9 trillion US dollars, of which small and medium-sized commercial real estate loans account for 69%, while commercial real estate loans account for 13% of all bank assets and 30% of the total assets of small and medium-sized banks. In this context, the market expects that the Fed’s table shrinking process may gradually slow down and the interest rate cut expectation should also be readjusted.
2. US economic data is weaker than expected.
In the fourth quarter of 2023, the annualized rate of real GDP in the United States dropped to 3.2%, the consumer confidence index of the University of Michigan dropped to 76.9 in February, and the ISM manufacturing index dropped to 47.8 in threshold again in February, all of which were lower than market expectations. The US economy is facing downward pressure, which stimulates the market to have higher expectations for easing policy.
Can the follow-up continue to rise?
To judge the future trend of gold, we must start with the three attributes of gold and the influencing factors behind it.
1. Monetary attribute-money supply
After the end of the Bretton Woods system, although the dollar was decoupled from gold, gold is still an important part of foreign exchange reserves in various countries, which is of great significance in maintaining exchange rate confidence.
Among all commodities, the price of gold is the only one that keeps the upward trend in the long-term dimension. Observing the M2 growth rate of the world’s major economies and the compound annual growth rate of the gold price center are also relatively close.
This is because gold is the reserve asset of credit currency. With the expansion of global balance sheet, the major economies in the world have been expanding the money supply for more than 20 years, so the reserve value of gold is also increasing, which makes the price of gold keep a certain upward slope for a long time, instead of fluctuating with the economic cycle like other commodities.
At present, the Fed’s table contraction has gradually entered the second half, and the market expects that its table contraction will gradually slow down, which will support the performance of gold prices.
2. Financial attribute-real interest rate
Generally speaking, gold investment does not produce any predictable cash flow, and it is an interest-free asset. The only way for investors to get a return is the rise of gold price.
Other assets, such as stocks and bonds, can be regarded as substitutes for gold, and the return rate of these assets is equivalent to the opportunity cost of holding gold, and these returns can be measured by the real interest rate.
So theoretically, the lower the real interest rate, the more obvious the relative value of gold. Combined with the current market, the Fed’s interest rate hike cycle has basically ended, and the market generally expects to start the interest rate cut cycle this year. The downward trend of real interest rate is expected to push up the price of gold.
3. Commodity attributes-supply and demand pattern
Since the 21st century, the annual supply and demand of gold has been around 4,000 ~ 4,500 tons, with a compound annual growth rate of only about 1.8%, and the market supply and demand are basically stable. Moreover, the mining cost of gold is stable below $1,000, and the fluctuation of economy and gold price has little influence on the supply of mineral gold. Because the elasticity of both ends of supply and demand is relatively poor, it has little impact on the price of gold.
Generally speaking, the three attributes of gold, namely, currency, finance and commodity, have different factors affecting the price of gold. Combined with the current market environment, the slowdown in the Fed’s contraction, the expected increase in interest rate cuts, and the rising demand for safe-haven funds will all support the gold market.
How to buy it?
1. If it is from the perspective of hedging, the best choice is undoubtedly to buy physical gold. You can go to the bank to buy gold bars with relatively low process cost for storage.
2. If it is from the perspective of investment, the simplest way is to make a one-click layout through the gold ETF, or to connect funds through the gold ETF. Because gold ETF tracks domestic spot contracts, it can closely track the rise and fall of gold prices. Moreover, this kind of investment transaction is convenient to operate, with strong market liquidity and relatively low transaction cost.
3. Compared with a single large investment, the director suggested that you open positions in batches to deal with short-term potential price fluctuations through fixed investment and other means. At the same time, do a good job in setting the take profit line and cash in the income in time.
According to the calculation, since 2003, gold has been held at any time. Before the holding period is shorter than 3 years, the probability of compound annual return and positive investment income basically keeps positive growth with the length of investment period. However, after the holding period is extended to 3 years, the positive correlation is weakened, that is to say, the stability of obtaining the due income is reduced.
Therefore, the income from gold investment is neither "exchanged" by day trading in the short term, nor simply "held" for a long time. Gold is an important option in our asset allocation. You can adjust the proportion of gold allocation in a timely manner in combination with short-term and long-term factors that affect the price of gold.
(Article source: Bosera Fund)