In recent days, the international gold price broke through 1900 U.S. dollars per ounce, a 9-year high, and rose nearly 80 US dollars a week, or 5%.
Global central banks and sovereign funds have accelerated their withdrawal from negative yield bonds and increased their allocation of gold. Global liquidity is abundant, risk aversion is rekindled, and gold speculation is high... All these are driving up the price of gold.
First of all, the decline in real yields is the biggest driving force for the upward movement of gold, a non interest bearing asset. In November 2018, we started to be bullish on gold. At that time, the spot price of gold was $1223 / oz, and the real yield on 10-year US Treasury bonds (excluding inflation) was 1.07%. Gold has risen 50% since then, and the dollar has not depreciated during this period, so gold has been driven almost entirely by the fall in real yields on 10-year Treasury bonds, which have so far fallen by 200 basis points (BP) and are now only about - 0.9%. Eric robertsen, head of global research at Standard Chartered, told reporters it wasnt just gold that made the jump, but the S & P 500 index was up 22% in less than two years.
Robertson said that while real yields are not expected to fall significantly further, the current level of yields has triggered a wave of yield seeking in the market, with silver, copper and emerging market stocks joining the ranks of the U.S. stocks. Since March 18 this year, the price of silver has risen by 100%. Silvers market attention suggests that market participants are looking further for assets that could catch up with the gains in risky assets since March.
Secondly, the profit seeking trend is also reflected in the allocation logic of large institutions. INVESCOs research also found that the proportion of gold allocation in the total reserve portfolio of central banks has increased from 4.2% in 2019 to 4.8%, and nearly half of the increased gold (48%) is used to replace negative yield bonds. This trend will continue.
Gold and silver have risen sharply in recent years, but platinums rise is limited. The reason is that platinum has no ETF and futures, but the former two have. Sun Hongzhi, head of the Greater China region of BNP Paribas Global Markets Department, told the first financial reporter. At present, it is becoming easier to invest in gold, which naturally attracts more investors.
In the first half of this year, Shanghai gold, which is denominated in Renminbi, rose by a record 16% in the first half of this year. According to the world gold association, gold investment increased by 11.6 tons in the first half of the year, bringing the total asset management scale of Chinas gold ETF to a record $3.2 billion. In June, Huaxia gold ETF, another China Gold ETF backed by at least 90% of Shanghai Gold Exchanges AU9999 physical gold contract, was listed on the Shanghai Stock Exchange. In addition, Wells Fargo Shanghai Gold ETF, GF Shanghai Gold ETF, CCB Shanghai Gold ETF and BOC Shanghai Gold ETF are also planned to be launched in the near future. Similar to the existing gold ETFs, at least 90% of the assets under management of these ETFs are invested in the physical gold contracts of the Shanghai gold exchange.
Dollar devaluation may be the next driving force for gold
As gold prices approach record highs, what is the driving force for the future?
In other words, the downward trend of gold price in the past two years will be the main driving force for the downward trend of gold price in the future.
This week, the U.S. dollar index has fallen to around 94, a sharp drop from its high of nearly 104 in March, but this is not the end of the story. Although all institutions are looking down on the dollar this year, many buyer customers are still reluctant to really raise their bearish dollar positions. If the dollar really starts to depreciate as expected (institutional short positions start to increase), then what happens to gold? We expect gold prices to continue to set new highs and break the record high of $1921 / oz set in September 2011, Robertson said
With the gradual recovery of the global economy, investors will reduce their allocation of dollar assets if they start to allocate money to commodities and emerging markets again, Robertson said. Its going to be an accelerator for the real depreciation trend of the dollar. How far can dollar depreciation go? The low point of the dollar at the beginning of 2018 seems to be a reasonable initial target - there is still 7% downside space compared with the current situation.
Recently, the rise of the euro has also weakened the momentum of the dollar. The euro broke through a high of 1.15 against the US dollar this week, mainly because the leaders of the 27 EU countries reached an agreement on the 750 billion euro economic relief plan and EU budget after five days of intensive negotiations in Brussels.
In addition, with the recovery of oil and commodity prices combined with the governments stimulus policy, inflation began to rise slowly, and the recovery of inflation expectation will support gold. At present, the 10-year breakeven inflation rate in the US has rebounded to nearly 1.6%, which plummeted to around 0.5% a few months ago.
Short term increase too fast or potential risk
We expect gold to average $1909 / oz in 2021. Although gold prices have been hitting new highs in the near future, the subsequent upward trend may face certain risks. Robertson said.
Boris Wu, a special analyst at kvbprime, told the first finance reporter that the price of gold has reached a crazy level, and it has become very difficult to find an entry point from the technical aspect. If our goal in the past few days was to grasp the predictable space stably, we need to find out the rules and wait-and-see again, and it is not recommended to continue to pursue gold in the short term.
Fu Xiao, head of commodity strategy at BOC International, told reporters that since the current market rebound is mainly driven by speculative funds, which may leave the market soon, this means that gold prices will be reversed when bullish sentiment subsides. It is worth noting that gold is very fond of uncertainty. In the long run, there are uncertainties in the three major drivers of gold prices, whether its liquidity (mainly fiscal stimulus), epidemic progression, or geopolitical risks. The agency also expects these factors to push gold up to US $2000 / oz. However, in the short and medium term, the markets expectations for the first two have been fully reflected in the gold price. At present, geography has become the main promoter of gold price. However, such factors may lead to a sharp fall in gold prices in the future. Source: editor in charge of the first finance and Economics: Li Zhaoyuan_ B7890
Fu Xiao, head of commodity strategy at BOC International, told reporters that since the current market rebound is mainly driven by speculative funds, which may leave the market soon, this means that gold prices will be reversed when bullish sentiment subsides.
It is worth noting that gold is very fond of uncertainty. In the long run, there are uncertainties in the three major drivers of gold prices, whether its liquidity (mainly fiscal stimulus), epidemic progression, or geopolitical risks. The agency also expects these factors to push gold up to US $2000 / oz. However, in the short and medium term, the markets expectations for the first two have been fully reflected in the gold price. At present, geography has become the main promoter of gold price. However, such factors may lead to a sharp fall in gold prices in the future.