Gold has risen for the seventh consecutive week, the longest since 2011, and may soon reach a record high. The pace of golds rise last week was incredible, people just want to buy and buy gold, and they dont want to miss its strong trend, said Bob haberkorn, market strategist at rjo futures. Part of the reason is that they are preparing for future dollar depreciation and Inflation Hedging. Moreover, novel coronavirus pneumonia is a safe place before the November election, and it is expected that the price of gold will continue to 2021.
Three main factors push up gold price
More and more signs novel coronavirus pneumonia is impeding the global economic recovery. And the geopolitical situation has become the main reason for the rapid rise in gold prices, which has also strengthened the attractiveness of gold.
All these factors, taken together, have caused investors to worry about economic stagflation: while economic growth is falling, inflation is rising. Novel coronavirus pneumonia will continue to rage in the United States, and the economic recovery will stagnate. Investors expectations for US inflation in the next 10 years will continue to rise. On the 24 day, the inflation forecast is even higher than 1.5%, although this figure is still below the level before the outbreak and even lower than the 2% of the Fed. Inflation target, but nearly a percentage point higher than the 0.59% yield on 10-year Treasury bonds.
When the real interest rate is zero or below zero, investors will look for safe havens that will not lose their value-added ability, withdraw their capital from the bond market and invest in more attractive gold, which also makes the U.S. Treasury bond market a major driving force for the gold boom. For investors, the opportunity cost of holding gold is the lowest at this time, and the gold price will still rise with the increase of market uncertainty in the future.
According to INVESCOs quarterly survey of 83 sovereign wealth funds and a number of central banks, sovereign funds reduced their stock exposure to the lowest level since 2014 in the first quarter. Among them, 37% of the sovereign funds plan to continue to reduce their shares in 2021, and intend to increase their gold holdings while reducing their stocks. About 18% of the central banks plan to increase next year Its gold holdings, while 23% of sovereign funds intend to increase their gold holdings.
However, their motives are different from those of holding gold. Sovereign funds regard gold as an inflation hedging tool with low correlation with other financial assets, and tend to buy gold ETFs, gold futures and gold swaps as the main investment tools. Central banks see gold as a substitute for us dollar bonds and a way to reduce their exposure to US dollars in their foreign exchange reserves. Central banks mainly hold physical gold.
Citigroup expects gold prices to climb to record highs in the next six to nine months, with a 30% chance of breaking through $2000 / oz in the next three to five months.
Among them, the most radical is Bank of America, which raised its gold price target to US $3000 / oz in the next 18 months. The reason is that the spread of the epidemic is continuously boosting the gold price, and factors such as the decline of real interest rate and productivity, and the possible change of geopolitical pattern are further supporting the future price of gold.
It may not be too optimistic to make such a bold prediction. In mid March this year, gold prices fell sharply along with the global stock market. At that time, the price of gold plummeted from $1700 to $1450, which took only eight trading days. However, after the US Federal Reserve unexpectedly cut interest rates, gold prices rebounded along with the stock market, which also means that the massive release of water by the central bank can serve as a solid backing for the continuous rise of gold. This correlation has a precedent. After the financial crisis in 2008, the Federal Reserve launched several rounds of quantitative easing program. From December 2008 to June 2011, the Federal Reserve purchased $2.3 trillion of bonds, and kept the borrowing cost close to zero, in order to boost economic growth. During this period, gold prices also went up, rising from US $1000 / oz to a record high of US $1921.17/oz set in September 2011. This year, the scale of asset purchases initiated by the Federal Reserve broke through $5 trillion, far higher than that of that year. In addition, there is the idea of continuing to expand stimulus. The Feds interest rate meeting next week may indicate whether further stimulus is needed. Source: editor in charge of the first finance and Economics: Li Zhaoyuan_ B7890
After the financial crisis in 2008, the Federal Reserve launched several rounds of quantitative easing program. From December 2008 to June 2011, the Federal Reserve purchased $2.3 trillion of bonds, and kept the borrowing cost close to zero, in order to boost economic growth. During this period, gold prices also went up, rising from US $1000 / oz to a record high of US $1921.17/oz set in September 2011.