Gold prices hit 7 years of new high institutions have been optimistic, the next stop 1800 mark?

　　After a surge in cases of new coronary pneumonia in several US states this week, spot gold surged to its highest point in 2012, only one step away from the $1780 mark. Although the current price of gold has slightly retreated to $1763 per ounce, many institutions are still very optimistic about its market outlook.

Supported by new hedging demand and monetary stimulus, gold prices hit a seven-year high

　　The US government is working hard to reopen the economy, but the epidemic is also likely to reignite. The states of Florida, Texas and Arizona all showed the highest record of newly confirmed cases in a single day this week.

　　The possibility of a "second wave" of the new coronary pneumonia epidemic in the third quarter of this year has made investors more cautious and chose to escape from risky assets and flood the gold market. This move pushed the price of gold to a seven-year high of $1,779 per ounce on the 24th.

　　At the same time, central bank stimulus measures also boosted gold prices. For example, the Bank of England increased its bond purchase plan last week, the Fed hinted that interest rates will continue to remain low, and the tendency of central banks in many countries to maintain low interest rates also supported gold prices.

　　Fawad Razaqzada, an analyst at foreign exchange dealer ThinkMarkets, said: "There is no doubt that due to the economic losses caused by the epidemic and the possible impact of the second half of this year, the inflow of safe-haven funds boosted gold, and the price of gold also Find good support in the liquidity released by multi-national central banks."

　　This year, gold has risen more than 13%, and it is also an anti-inflation asset. The yield of gold even outperforms the three major US stock indexes: the Dow’s year-to-date yield is -11.3%, and the S&P 500 index’s yield is -6. %, and the Nasdaq index yield is 9.8%.

　　Facing the brilliant performance of gold since the first half of the year, many institutions are very optimistic about the future trend of gold. Goldman Sachs Group predicts that within the next twelve months, the price of gold will reach a record $2,000 per ounce. JPMorgan Chase also stated that investors should continue to hold gold because gold is most likely to play a role in a lower real rate of return environment. Citigroup also reiterated that the price of gold may exceed $2,000 by the middle of 2021.

The possibility of negative interest rates is also secretly pushing the price of gold

　　The market tensions dominated by the new coronary pneumonia epidemic and the inflationary effects of central bank stimulus measures have become the best support tools for gold. Although some buyers chose to make a profit at the 7-year high and leave the market, another part of the buyers also took the opportunity of this callback to continue to buy gold.

　　In addition to the central bank's wanton release of water and the threat of a global epidemic that has brought a hard core boost to gold, negative interest rates also seem to be gradually approaching the United States. Negative real yields have already appeared in Europe and Japan. The real yields of the United Kingdom and Germany are now even lower than Japan. Some analysts believe that the advent of the era of negative interest rates in the United States may only be a matter of time.

　　Although the Fed has always stressed that interest rates will not be adjusted for some time to come, the market does not think so. Since June, US Treasury yields have continued to fall, and 10-year U.S. inflation-protected bonds (TIPS) even fell to a negative interest rate of -0.6% on Friday (19th), also setting a new low since 2013, when Gold prices were pushed up by more than $19.

　　The National Bank of Australia economist John Sharma said: "The increasing number of confirmed cases of new coronary pneumonia worldwide has led to doubts about the ongoing economic recovery, while also allowing gold prices to continue to be supported. If some states need to achieve further The blockade measures may also mean that the Fed and the Treasury Department need further economic support, when interest rates may continue to fall. And gold will often benefit when interest rates fall, because this will reduce the opportunity cost of holding gold."

　　Lower interest rates or even negative interest rates are not good news for savers. A negative real rate of return means that the funds saved in the bank’s deposit account will be lost. Although this can be regarded as an initiative of the central bank to encourage depositors to consume, in the period of negative interest rates, it often means that investors are not optimistic about the future economy. And consumers will also reduce their purchasing power due to lack of confidence, thereby reducing the demand for goods and services. This will also be reflected in the economic growth rate.

　　When interest rates continue to fall, putting funds on assets that can hedge against currency depreciation becomes a natural choice, which also means that better funds include stock markets or gold markets.

　　In such a large environment, investing funds in anti-inflation assets in the short term can often produce better returns, because in developed countries, the actual inflation rate will not rise much at all in the short term, while anti-inflation assets have a large amount of funds. Driven by the price rise, it produced a self-reinforcing effect and completed the effect of hedging.

　　This has also become an important support for the mid-term rise in gold prices. The biggest disadvantage of gold as a financial asset is that it does not pay any interest income. When safe assets such as national debt can only provide low or even negative yields, the inherent shortcomings of gold weaken and become more attractive, especially when the performance of US stocks has decoupled from fundamentals to a certain extent.

　　In addition, although people very much hope that the economy can quickly recover from the impact of the new coronary pneumonia epidemic, but at the same time their confidence in corporate profits is also very low. Even if economic activity picks up, many companies are actually difficult to fully restore their profitability before the epidemic. Under the potential risk of repeated epidemics, these companies will also face pressure to repair their balance sheets. In this case, they also It is difficult to support stock prices through repurchases.

　　The International Monetary Fund (IMF) warned on Wednesday (24th) that the current recovery of US stocks largely stems from the support of economic optimism. Once investors' expectations of the central bank's continued quantitative easing monetary policy fall short, the vulnerability of the US stock market will be exposed, and overvalued stock prices may quickly fall back. This is what the Fed does not want to see, so many Fed officials, including Fed Chairman Powell, have tried their best to maintain a neutral statement in order to stabilize market confidence.

　　Author: Huang Yu