Its been a long time since weve seen gold go up so fast. Bob haberkorn, market strategist at rjo futures, told reporters that gold prices have risen by more than $120 / oz, or more than 6.5%, in the past five trading days.
In his view, the sudden sharp rise in gold prices is mainly due to the influx of capital into gold ETFs - SPDR positions, the worlds largest gold ETF, have increased significantly every day in the past five trading days, and now it has reached a record high of 1228.81 tons.
According to the latest CFTC data, the arbitrage positions of Comex gold futures held by hedge funds and asset management products increased by 1.7301 million ounces and 1.6492 million ounces respectively in the week ending July 21, highlighting their growing concern that gold prices may turn down after setting a new record.
Its not uncommon for gold prices to fall suddenly and rapidly after hitting new highs in the past few years. This may be no exception. Wall Street hedge fund manager Zhang Gang told reporters. On the one hand, the soaring gold price is closely related to the sharp fall of the US dollar index. However, after a sharp drop of 8% in the past four months, the US dollar may hit the bottom and rebound at any time, dragging down the fall of gold price; on the other hand, the rise of gold price is also related to the contract conversion. Recently, a large number of capital began to shift their position from August contract to December contract, which led to a sharp increase in contract buying in December, which pushed up the gold price. However, with the end of the contract conversion, whether the gold price can obtain sustained buying support is still unknown.
Compared with hedge fund caution, investment banks are still struggling to prop up gold prices. For example, both Citibank and Goldman Sachs believe that the gold price is expected to exceed $2000 / oz in the next 12 months, and Bank of America has raised its forecast value of gold price to $3000 / oz in the next 18 months.
However, according to CFTC data, these investment banks, while bullish on gold prices, also acted as swap dealers and increased their positions of 1.2139 million ounces in Comex gold futures option arbitrage in the week of July 21.
In fact, many investment institutions that bought gold ETFs at the bottom in March and April have begun to make profits and withdraw. An American gold broker told reporters. They are in urgent need of this investment profit to cover the losses on investment credit products and corporate debt (due to the increase of bankrupt companies in the United States).
Three kinds of capital jointly push up gold price
According to the latest data released by the World Gold Council (WGC), as of the end of June, the global gold ETF had a net inflow of funds for seven consecutive months, setting a record. Among them, the total amount of gold ETF increased by 104 tons (about 5.5 billion US dollars) in June, and the total position reached a record high of 3261 tons.
The reason is that on the one hand, the unlimited QE measures of the Federal Reserve have pushed up the inflation expectation, but on the other hand, they have been continuously lowering the yield of 10-year Treasury bonds, which has led to the further development of the real interest rate in the negative range. Edward Moya, market analyst at hedge fund OANDA, told reporters. Today, the yield of 10-year US Treasury bonds is only 0.6%, but the market expects that the year-on-year growth rate of US inflation rate will reach 1.5% - 1.6%, leading to the expansion of real interest rate to - 1%. Once the real interest rate falls into negative value and there is no sign of recovery in the short term, a large amount of capital will flow into gold ETF for hedging, because of its high liquidity and convenient operation, it is one of the best channels to buy up gold.
The above-mentioned U.S. gold brokers disclosed to reporters that in the past week, there were mainly three types of capital pouring into gold ETFs: first, retail investors; second, hedge funds and asset management products; third, gold traders who took the opportunity to raise prices to ship.
Among them, retail funds are the fastest, accounting for more than 60% of gold ETF inflows in the past week. He said it bluntly. Most retail investors are buying up gold prices to arbitrage against the falling dollar, tightening Sino US relations and the re spread of the US epidemic. In contrast, hedge funds and asset management products bet on both sides. On the one hand, they chase up gold prices through gold ETFs, while on the other hand, they increase hedging positions through the gold futures and options market to cope with potential gold price callback risks.
Zhang Gang told reporters that this is also a lesson learned from the past few years when gold prices tend to fall rapidly after reaching new highs - I dont know why, every time the gold price breaks through the high point, there is always a profit taking plate that quickly appears to suppress the gold price.
Christophe spaenjers, a finance professor at HEC business school in Paris, admitted that behind this, golds performance in fighting inflation and resisting the fall in real interest rates was poor. In the past 40 years, the annualized return of gold price after excluding inflation was only - 0.4%, while the annualized returns of US stocks and US bonds were 7.9% and 6.2% respectively in the same period. This forced a large number of investment institutions to be more willing to make profits by selling gold high and buying low to cope with inflation and lower real interest rates, rather than holding gold for a long time.
After all, the continuous influx of retail capital will set off a big play in the gold market. We certainly dont want to be the target of sniping. He pointed out.
In the face of soaring gold prices, whether central banks and sovereign wealth funds, once big buyers of gold, will continue to increase gold prices has also become a hot topic in the financial market.
According to INVESCOs quarterly survey of 83 sovereign wealth funds and a number of central banks, many sovereign wealth funds and central banks will significantly reduce their stock exposure in the first quarter of this year, while all intend to increase their holdings of gold. About 18% of the central banks and 23% of the sovereign wealth funds said they planned to increase their gold holdings next year.
However, todays surge in gold prices is also troubling some central banks and sovereign wealth funds. A large U.S. asset management agency in charge of precious metal trading department disclosed to reporters. On the one hand, the excessive increase of gold price leads to sharp price fluctuations in the future, which is not conducive to their pursuit of relatively stable investment returns. On the other hand, most central banks and sovereign wealth funds have no precedent to increase their holdings of gold when the gold price reaches a historical high.
He said bluntly that, given the continued rise in gold prices, the total amount of gold held by global central banks in the second quarter is likely to be lower than 145 tons in the first quarter. However, the increase of sovereign wealth fund holdings will effectively offset the pressure of the continuous reduction of central bank buying. The reason is that compared with the central bank regarding gold as a substitute for U.S. debt, the central bank often chooses to gradually adjust its position; sovereign wealth funds are more urgent to deal with the decline of US dollar reserve status and the overflow of US dollar; in addition, gold has a low correlation with other financial investment varieties, and it is also regarded as an important hedging tool by sovereign wealth funds to alleviate the impact of violent fluctuations in the financial market.
The head of precious metal trading department of a large asset management institution revealed that at present, in addition to increasing gold positions through self-supporting departments, many sovereign wealth funds have also added entrusted investment lines to well-known multi strategic asset management institutions, because the latter is increasing the gold allocation, and its ultimate goal is to increase the gold position to about 15%, so as to cope with the spread of the epidemic and the cooling of Sino US relations And other uncertain risks. Reporters have learned that sovereign wealth funds will not chase up gold prices in order to increase their positions in gold. On the one hand, they can purchase gold positions from investment banks at a lower agreed price, or choose an opportunity to buy gold ETFs when the gold price falls back; on the other hand, they will set up corresponding hedging positions through gold futures or gold swap products to hedge against the risk of price decline, thus substantially offsetting the impact of their overweight measures on the rise of gold prices. However, in the current period of crazy gold buying, any information about the increase of gold holdings by central banks and sovereign wealth funds is likely to be infinitely amplified and become the chips for retail investors to raise the gold price and make profits. Zhang Gang said frankly. (author: Chen Zhi, editor: Zhang Xing) source: 21st century economic report editor in charge: Wang Xiaowu_ NF
Reporters have learned that sovereign wealth funds will not chase up gold prices in order to increase their positions in gold. On the one hand, they can purchase gold positions from investment banks at a lower agreed price, or choose an opportunity to buy gold ETFs when the gold price falls back; on the other hand, they will set up corresponding hedging positions through gold futures or gold swap products to hedge against the risk of price decline, thus substantially offsetting the impact of their overweight measures on the rise of gold prices.
However, in the current period of crazy gold buying, any information about the increase of gold holdings by central banks and sovereign wealth funds is likely to be infinitely amplified and become the chips for retail investors to raise the gold price and make profits. Zhang Gang said frankly.