The rise in gold prices highlights the value of gold
Since the beginning of this year, the international gold price has been volatile to the upside, and the price of COMEX gold futures in New York exceeded $3,2000 / oz in late March, and hit a yearly high of $4,13.2063 / oz on April 40, just one step away from the all-time high in August 2020. As a "favorite" product for ordinary people to invest and manage their finances, the price of gold continued to rise this time, once again attracting the attention of many investors. What is the reason for the sharp rise in gold prices this round? Is there room for gold prices to rise in the future? What should investors pay attention to when participating in gold investment? The reporter interviewed a number of industry insiders.
The international gold price fluctuated to the upside
Since the "thunder" of Silicon Valley Bank and Signature Bank in the United States in early March this year, gold prices have risen rapidly and broken through the $3,2000 / oz mark due to the rise in expectations of interest rate cuts by the Federal Reserve under the risk concerns of the European and American banking industries. At present, as risk events in the European and American banking sectors cool and expectations of a Fed rate cut within the year have faded, gold price rally slowed in April and entered high range volatility.
In the view of industry insiders, the rise in gold prices this year is mainly due to the rise of risk aversion in the market, especially in the context of weak economic data in the United States and the unsettled banking crisis in Europe and the United States, and the value of gold allocation as a traditional safe-haven asset has been further improved.
"The U.S. banking crisis continues to spread amid aggressive rate hikes by the Federal Reserve. Coupled with the conflict between Russia and Ukraine, the risk points of the European market are also gradually exposed, making everyone worry about the financial crisis. As a safe-haven asset, gold has naturally become the first choice for asset allocation. Wan Zhe, a researcher at the Belt and Road College of Beijing Normal University and former chief economist of China National Gold Group, said that at present, US inflation and the global economic downturn may last longer than the market expects, and other risk points may continue to be exposed in the future. Supported by risk aversion, gold prices still have some room to rise. At the same time, the recent voluntary production cuts by many oil-producing countries, and the plans of many countries to use local currency settlement and reduce the dependence on the US dollar, have also highlighted the value of gold.
Su Wenjie, select fund manager of Harvest Resources, said that the most important factor affecting gold prices is the change in US monetary policy. With US CPI growth slower than market expectations in December, inflation began to fall back at a high level after the Federal Reserve's sharp interest rate hikes curbed demand. At the same time, the market's expectation of a marginal weakening of the US economy has gradually strengthened, coupled with the intensification of the inversion of US long-term and short-term bond interest rates, the timing of the Fed's monetary policy shift is also expected to gradually approach, and gold prices are expected to continue to rise.
"In addition, geopolitical conflicts and a surge in central bank purchases will continue to support gold prices. As the only investment variety with both precious metal and currency characteristics, gold still occupies an important strategic position in asset allocation, and will continue to play its role as a hedge against currency depreciation, and investing in gold has long-term value. Su Wenjie said.
The relevant person in charge of the China Gold Association also believes that in the first quarter of 2023, the impact of the epidemic on the global economy gradually faded, but the geopolitical pattern was turbulent, the world economic growth rate slowed down, and inflation expectations lingered, so the price of gold was pushed to a historical high.
Central banks continue to buy gold
According to the World Gold Council, global central banks made a big move in 2022 to deal with complex economic and geopolitical situations, setting a record 1136,2022t of net gold purchases. "Performance in times of crisis", "hedging inflation" and "long-term value preservation assets" are the main driving forces for global central banks to hold gold in <>.
Central banks continue to buy gold on a large scale, which has also become an important factor driving the price of gold. Last year, emerging market central banks accounted for the majority of gold purchases, with the Middle East being one of the most active buyers in 2022. Egypt, Qatar, Iraq and the United Arab Emirates bought 47 tonnes, 35 tonnes, 34 tonnes and 25 tonnes of gold respectively, all of which significantly increased their gold reserves.
Since the beginning of this year, the trend of global central bank gold purchases has continued. The Monetary Authority of Singapore bought 51.8 tonnes of gold in the first two months of the year. Russia's central bank recently announced that it had increased its holdings of gold by 2 tonnes between February and February this year. In addition, central banks such as Turkey and India have also continued their pace of gold purchases this year.
It is worth mentioning that People's Bank of China has increased its gold reserves for 5 consecutive months. According to data released by People's Bank of China, as of the end of March this year, People's Bank of China gold reserves were reported at 3.6650 million ounces, up 58,11 ounces from the previous month. Since the start of additional gold purchases in People's Bank of China November last year, gold reserves have increased from 6264.3 million ounces to 6650.386 million ounces at the end of March this year, with a cumulative increase of <>.<> million ounces.
For the "collective" gold purchase by global central banks, Xia Yingying, an analyst at South China Futures Nonferrous Metals, believes that there are three reasons: first, the rise in global recession and stagflation risks, and the persistence of financial and geopolitical risks, have increased the demand for central banks to allocate traditional safe-haven assets gold; Second, geopolitical conflicts have accelerated the trend of diversified allocation of foreign exchange reserves in various countries, and gold is the guarantee for the diversification and safety of central bank reserve assets; Third, after the rapid interest rate hike of the United States, the imported inflationary pressure caused by the depreciation of the local currency of other countries has increased the need for the central bank to stabilize the exchange rate of the local currency and control imported inflation by increasing its gold holdings.
In addition, some experts interviewed pointed out that the global gold demand reached a record high, which also shows that many countries around the world have lost confidence in the US dollar, and their willingness to prepare for "de-dollarization" of their own assets is gradually increasing.
"The main purpose of central banks to increase gold reserves is to diversify the composition of their own asset reserves, relatively reduce the composition of US dollar and US bonds, and increase the composition of foreign exchange reserves of other sovereign currencies." Wang Lixin, CEO of the World Gold Council in China, said that the first requirement for reserve assets of central banks is safety, the second requirement is good liquidity, and the third takes into account returns. Continuous central bank reserve gold is to diversify its reserve assets, from the main dollar as the composition of reserve assets, gradually began to diversify, gold is a very unique reserve asset.
West China Securities Research Report believes that from a longer-term perspective, the recent trend of many countries choosing to settle in local currencies and the central bank increasing their holdings of gold continues, and the attention of "de-dollarization" continues to increase, and the value of gold is becoming more prominent in this process.
Investing in gold still requires caution
For the volatility of gold prices, investors are most concerned about whether it is still a good node to "enter" investment.
From the current point of view, ordinary investors participate in gold investment, and the more common ways are mainly physical gold, gold accumulation, gold ETF, gold futures, etc.
"Before investing, investors should choose the appropriate investment method according to their own circumstances, and the characteristics of each method are different." Su Wenjie said that physical gold has collectible value, low purchase threshold and certain ornamentation, but the disadvantages are high buying and selling costs, high storage costs and low liquidity; If gold accumulation, investors can set up a fixed investment plan or actively purchase gold shares after opening a gold accumulation account in the bank, and realize or exchange physical gold through the method of "fractional deposit and whole withdrawal", which is conducive to investors sharing investment costs and reducing the risk of gold price fluctuations; Gold ETF is an open-end fund with most of the fund assets invested in gold-based assets, closely tracking the price of gold and listed on the stock exchange, with low transaction fees, low minimum purchase thresholds and high transaction efficiency; Gold futures trading is efficient and leveraged can be used, but the threshold is high, and leveraged trading also amplifies the risk.
It is worth mentioning that the World Gold Council report shows that the rise in gold prices has attracted investors' attention to gold, and has also contributed to the highest monthly inflow of Chinese market gold-backed ETFs since July last year. By the end of March, the total AUM of Chinese gold-backed ETFs had reached RMB7 billion, with inflows of approximately RMB3.220 billion in the month.
The latest data released by the China Gold Association also shows that in the first quarter of 2023, the national gold consumption was 291.58 tons, an increase of 2022.12% compared to the same period in 03. The cumulative trading volume of all gold varieties of the Shanghai Gold Exchange in the first quarter of this year was 1,16 tons (0,58 tons per side), an increase of 20.72% year-on-year, and the bilateral turnover was 4.84 trillion yuan (2.42 trillion yuan per side), an increase of 31.10% year-on-year
For whether it can still "enter" now, market participants generally believe that although gold prices still have room to rise in the long run, investors should invest cautiously under the high price of gold in the short term, especially need to pay attention to the Fed's monetary policy trends.
"Gold remains bullish in the long term, and gold valuations are expected to continue to move upwards as the Fed's interest rate hike nears its end and monetary policy shifts marginally to loosen. At the same time, the central bank buying boom will also continue to boost gold demand. In addition, the risk of recession in the United States and geopolitical risks will also push up safe-haven demand for gold. Xia Yingying said, but at the current high, it is not recommended that investors continue to chase the rise at a high level, and can wait for the gold price to pull back before investing step by step. At present, there is some pullback pressure on gold in the second quarter, because the market was too optimistic about the Fed's interest rate cut expectations this year, so there is a certain possibility of correction.
Su Wenjie said that in the short term, gold prices are mainly negatively correlated with the Fed's real interest rate, and after the interest rate hike, the real interest rate will fall, and the gold price is expected to continue to rise. In the long run, anti-globalization has led to a decline in the trust of the US dollar and US bonds, and the corresponding gold has gained more trust in the market as the world's common currency. "It is expected that the probability of starting a rate cut within this year is low, and if the Fed starts the interest rate cutting cycle next year, gold prices may usher in a new round of rise." Factors such as safe-haven demand and de-dollarization demand will provide some support for the future trend of gold prices. Su Wenjie thought. (Economic Daily reporter Ma Chunyang)