Gold has soared and has not seen the upper limit.
Chen Shan/Economic Observer
Source: the creativity of the worm
After the gold price hit a new high, Wall Street investment banks continued to sing more gold, with the sword pointing to more than $3,000 per ounce. How much imagination can gold "seesaw" around $2,400/ounce give investors? Will there be a new high after the new high?
guide reading
One || COMEX gold rose by 9.74% in March, and the highest increase since April reached 8.86%. Investors are both excited and in a trance amid the cheers of gold prices hitting record highs.
Ii || For decades, gold pricing has mainly anchored the real interest rate of US Treasury bonds, followed by the US dollar index. However, this round of gold trend deviates from the fundamentals, and the reasons for the surge are confusing.
||| This round of "extraordinary play" of gold prices, or a unique bet on gold based on geopolitical tensions.
Iv || Under the disturbance of trading factors, the short-term gold price fluctuation may be enlarged, and there may be a risk of callback, but the whole year is still on the high side.
A "sudden" gold bull market has attracted the attention of global investors.
2000 USD/oz, which was once the price that gold could not break through before November 2023. But since 2024, gold has easily crossed $2,000 per ounce. In March, the gold market seemed to be suddenly injected with a shot in the arm, and the epic bull market surged.
The New York Mercantile Exchange gold futures (COMEX gold) quickly broke through a series of important barriers of $2,100/oz, $2,200/oz, $2,300/oz and $2,400/oz, leaving the voice of analysts prompting the callback risk behind.
On April 12th, COMEX hit $2,448.8 per ounce in the gold session, pushing the current market to a climax. This is the height that gold has never reached in history. In just 30 trading days from March 1 to April 12, the cumulative increase of gold price is close to 20%.
A domestic gold ETF (transactional open index fund) holder lamented, "It’s a bit hard to fathom the trend of gold. Recently, the price of gold has risen so much that it is a bit’ afraid of heights’. "
Ignoring the strength of the US dollar and the rising yield of US bonds, gold has been "soaring" like a runaway wild horse, which is obviously contrary to the pricing logic of the negative correlation between the two in the past. The failure of the anchor of gold pricing has puzzled many market observers. Who drives the price of gold? What is the new pricing logic? A series of questions have aroused widespread concern and debate in the industry.
Traditional logic seems inexplicable, but further deconstructing the long-term operation logic of gold price and the short-term market incentives also has a clear causal relationship. Behind a series of "grand narratives" such as the loose expectations of Fed policy, the weakening of US dollar credit and geopolitical risks, the allocation value of gold has been re-examined. The increase in global official gold reserves, traditional gold buyers and strong demand in the global futures market continue to push up the price of gold.
On April 19th, the conflict between Israel and Iran disturbed the trend of gold price again. COMEX gold surged to $2,433/oz, approaching the previous high and then quickly falling back below $2,400/oz, and the price of gold fluctuated.
After the gold price hit a new high, Wall Street investment banks continued to sing more gold, with the sword pointing to more than $3,000 per ounce. How much imagination can gold "seesaw" around $2,400/ounce give investors? Will there be a new high after the new high?
"gold rush"
This April, the price of gold rushed to an unprecedented height.
On April 12, spot gold in London surged to $2,431.78 per ounce, and COMEX gold reached a maximum of $2,448.8 per ounce, both hitting record highs. Looking at it for a long time, the price of gold has rebounded by more than 50% compared with the low point in November 2022.
If March 1st is regarded as the starting point of this round of gold rally, COMEX Gold will push the excitement of the market to a climax with 21 positive lines in the 30 trading days up to April 12th, with the cumulative increase approaching 20%, soaring from $2,050/oz to over $2,400/oz.
From the climbing path, on March 6, COMEX gold broke through $2,160 per ounce, setting a new record high. On March 8, it broke through $2,200 per ounce; After hovering at a high level for about 10 trading days, the price of gold surged upward again, reaching $2,300 per ounce on April 2. On April 12, it hit a high of $2,448.8 per ounce.
COMEX gold rose by 9.74% in March, and the highest increase since April reached 8.86%. Investors are both excited and in a trance amid the cheers of gold prices hitting record highs.
Funds poured into the gold market through various channels.
Since April, domestic gold-themed ETFs have generally achieved double growth in net value and scale, and long-term transactions have gradually become crowded.
The biggest increase in the net value of these gold-themed ETFs during the year almost exceeded 15%. The net value of Huaxia Gold Stock ETF and Yongying Gold Stock ETF once rose by more than 40% and 30% respectively during the year. The former took an emergency suspension under the enthusiasm of funds and prompted the premium risk.
In the discussion area of the fund sales platform, many investors are discussing gold investment.
On April 16th, some investors exposed the investment bill of a gold ETF-linked fund on the fund sales platform-holding it for half a year gained about 20% income. The investor spoke: "I sold it and fought the most beautiful battle." There are also many investors who buy gold-themed ETFs after the gold has risen sharply, and pay attention to the rise and fall of gold every day. The "gold rush" helped the birth of the first 20 billion "Big Mac" gold ETF in China. As of April 11th, the scale of Huaan Gold ETF reached 21.2 billion yuan, setting a new record. As of April 16th, the total scale of 14 gold ETFs exceeded 50 billion yuan, an increase of over 70% compared with the end of last year.
In mid-April, the price of gold jewelry in domestic brand gold shops stood at 730 yuan/gram. On April 16th, Chow Tai Fook’s gold jewelry price reached 737 yuan/gram, up 113 yuan per gram compared with the beginning of the year. During this period, the price of pure gold jewelry soared and became the daily talk of consumers.
Shanghai Gold Exchange and Shanghai Futures Exchange have successively taken risk control measures for their gold varieties, such as increasing the range of price limit, trading margin ratio and handling fee.
Global central banks are also increasing their holdings of gold. Judging from the actions of the Bank of China, in March, 2024, China’s official gold reserve was 72.74 million ounces, an increase of 160,000 ounces over the previous month, which was the 17th consecutive month to increase its gold reserve.
Failure of pricing anchor
For decades, gold pricing has mainly anchored the real interest rate of US Treasury bonds, followed by the US dollar index. However, this round of gold trend deviates from the fundamentals, and the reasons for the surge are confusing. Market observers are generally thinking about a question: why doesn’t gold fall when the yield of US dollar and US debt rises?
Many interviewed private equity fund managers believe that it is difficult for the traditional gold pricing framework to comprehensively analyze the current gold price trend. In the current market, especially since the end of March, the expected time for the Federal Reserve to cut interest rates has been delayed, but the yield of gold has risen with that of the US dollar and US bonds, and the price of gold has even continued to hit a record high, completely subverting the conventional logic of the negative correlation between gold and the latter two.
The surge in gold has also jumped out of the analytical framework and expectations of Wall Street analysts.
In the latest research report, Goldman Sachs said that gold has risen by 20% in the past two months, despite the market expectation that the Fed will cut interest rates gradually, the economic growth trend is strong and the stock market has set a record. Traditional gold pricing logic, such as American real interest rate and US dollar index, can’t fully explain the speed and range of gold price fluctuation this year.
On April 8th, Joni Teves, strategist of UBS, released a report saying that gold reached a new height in the new week. There are some good news in the market, but these factors themselves are not enough to explain the sharp rise in gold prices. The price of gold broke through the pressure level, broke the basic relationship with the macro, and even broke the gold pricing model.
Soochow securities also mentioned that it is an interesting coincidence that gold can quickly break through $2,300 per ounce in a short time. Macro narrative is always a "slow variable", which can’t explain why the price of gold rose above two important barriers, namely, 2200 USD/ounce and 2300 USD/ounce, in just two weeks.
The reasons behind soochow securities’s analysis are as follows: On the one hand, from the perspective of the cost and income of the assets themselves, people usually say that the price of gold is negatively correlated with the actual rate of return of US debt, mainly from the perspective of holding cost-the higher the actual rate of return of US debt, the higher the opportunity cost of holding gold. However, holding gold also has "gains". After the epidemic, risks such as default, high inflation and geopolitics frequently occur, and safe assets that are not interfered by sovereignty are more sought after by funds, which makes investors pay more and more attention to the safety premium of the income side when evaluating the gold price. On the other hand, under the background of the impact of the "sovereign debt-credit currency" system, at least in stages, the sovereign debt represented by American debt is no longer the same level of security assets as gold, and more and more investment institutions that pay attention to safety and stability reduce their holdings of American debt and hold gold instead, and then the yield of American debt and gold will rise together.
"mysterious" power
In fact, the influencing factors of gold price are extremely complicated, including geopolitics, market supply and demand, trading behavior and other factors besides the interest rate of US debt and the US dollar index.
This round of "extraordinary play" of gold prices, or a unique bet on gold based on geopolitical tensions.
On April 17, the World Gold Council issued a document saying that geopolitical factors and speculative capital flows pushed the price of gold higher in March. According to its attribution model of short-term gold price performance, the factors of "risk and uncertainty" and "trend kinetic energy" have pushed the gold price higher.
According to the World Gold Council, under the potential energy factor, March is the third strongest month since 2019 in terms of covering short positions and adding long positions in the New York Mercantile Exchange managed fund futures. Gold ETFs in all regions except Europe have achieved inflows. As geopolitical tensions spread to many fields, the geopolitical risk (GPR) index also rose again. From a macro point of view, although the market sentiment is high and the Fed’s monetary policy is moderate, there is an unexpected important cross in the US economic data, indicating that the risk of stagflation may rise again, which also provides support for the gold price.
CITIC Securities also believes that the abnormal rise in gold prices since March this year may be caused by speculative trading factors of gold. On March 1st and February, after the data of PMI (Purchasing Managers’ Index) of American manufacturing industry was released, the Fed’s interest rate cut was expected to heat up, gold speculative long positions (including professional investors and retail investors) began to increase rapidly, and gold speculative short positions began to decrease significantly.
According to the statistics of CITIC Securities, as of the end of March 2024, the number of COMEX gold non-commercial long positions increased significantly by 23.6% compared with the end of February. In the first week of March, the number of COMEX gold non-commercial long positions representing professional investors with speculative demand increased by 49,200, and the number of COMEX gold non-reported long positions representing retail investors also increased by a large margin. However, the number of COMEX gold commercial long positions traders (mainly commodity producers, traders and consumers) decreased in the same period, indicating that the increase was mainly due to the speculative demand for gold.
According to the data of the Commodity Futures Trading Commission (CFTC), as of the week of April 9, the speculative net long position of COMEX gold futures increased by 928 lots to 179,142 lots.
The positions of gold ETFs also bottomed out in March this year, an increase of 4.71 tons from the previous month. The return of allocated funds has become an important driving force for the rise of gold prices.
The reporter learned from many interviews that recently, international hedge funds and other asset management institutions have actively increased their holdings of gold and bet on its higher price. Behind this phenomenon, many investment institutions realize that their allocation of gold may be insufficient.
A person from an international investment institution said that the decision-making team of the institution had placed most of its funds in the US stock market due to the strength of the US stock market. However, this also led to a slightly insufficient allocation ratio of gold in the portfolio. With the increasing pressure of the correction of US stocks and the increasing international geopolitical risks, the institution recently began to reconsider and increase the allocation ratio of gold to balance the risks of the portfolio and cope with possible market fluctuations.
According to a Wall Street hedge fund manager, the Economic Observer revealed that a new policy arbitrage investment boom is emerging in the financial market. With the gradual warming of the market’s expectation of the Fed’s interest rate cut, more and more Wall Street investment institutions began to actively increase their long positions in gold futures before the interest rate cut, in order to make profits in the upcoming low interest rate environment.
A commodity researcher said that the re-establishment of long positions in gold futures options by international hedge funds and other asset management institutions attracted more follow-up buying and drove gold prices to record highs at a faster rate. At the same time, investors who buy on rallies continue to taste the sweetness, and more and more people begin to believe in the logic of rising gold prices.
In the view of Guosheng Securities, this round of gold rise was initially supported by fundamentals, and then gradually separated from fundamentals. The most likely reason is that trading factors are dominant, that is, the momentum effect and the "forced air" effect after breaking new highs.
The influx of speculative capital makes the price of gold keep rising. This actually reflects the subtle changes in investors’ confidence in the US dollar. At the same time, it also reflects investors’ growing vigilance and concern about the escalation of global economic fluctuations and the potential crisis in financial markets.
After the roller coaster
How big is the imagination of gold in the future?
The reporter noticed that more and more investors began to pay attention to gold investment. On the third-party fund sales platform, the discussion on the topic "Can gold still be bought?" continues to be hot.
The record high price of gold made the former optimists look conservative. Since April, many Wall Street investment banks, such as Goldman Sachs, UBS and Bank of America, have expressed their latest views on the current strong rise of gold, and have raised their gold price expectations.
Goldman Sachs believes that the current macro-policy and geopolitical situation will still support the bullish gold market. In the latest research report, Goldman Sachs has raised its year-end price forecast to $2,700 per ounce, higher than the previous $2,300 per ounce.
UBS said in its report on April 9 that the rising speed and strength of gold exceeded expectations. Therefore, UBS raised its forecast for gold, which is expected to reach $2,500 per ounce by the end of the year due to strong demand.
Bank of China believes that gold and silver are promoted by many parties, including central banks, investors and western buyers. It is estimated that the price of gold will rise to $3,000 per ounce by 2025.
On April 12, COMEX gold surged and dived, staged a "roller coaster" market, and defended the $2,360/ounce mark. In the following trading days, the long and short sides saw each other at $2,400. As of April 18th, COMEX Gold closed at $2,394 per ounce.
Guotai Junan Futures reminds that the short-term rising sentiment may come to an end, and gold may face a shock callback, at least the upward rate will slow down significantly.
Guosheng Securities believes that the central bank’s purchase of gold may still be a general trend in view of the background of increasing geopolitical uncertainties and superimposed currency overshoot. Therefore, under the disturbance of trading factors, the short-term gold price fluctuation may be enlarged, and there may be a risk of callback, but the whole year is still on the high side.
LucLuyet, a currency strategist at Swiss Patek Wealth Management, believes that the potential strong demand from traditional gold buyers and the global futures market has supported the rise in gold prices. In the short term, the volatility of gold price will increase, but it may not lead to price increase. In addition, gold may be affected by the decline in demand for gold ornaments and central banks and the high opportunity cost. In the medium term, in recent days, both Israeli and Iranian military operations have crossed the "red line", which means the structural tension in the region has escalated. Overall, the increase of global geopolitical risks may support the safe-haven demand for gold. "The change in the interest rate pattern may be a particularly strong downwind." The Investment Research Institute of Wells Fargo said in a report on April 15th that the Fed may cut interest rates later this year, but what is less well known is that the strongest performance of gold in the past appeared in the Fed’s interest rate cut cycle. Historically, in the 24 months after the Federal Reserve began to cut interest rates, the price of gold rose by an average of 20%.
The World Gold Council issued a document on April 17, pointing out that gold currently has strong fundamental support, especially the low participation of American investors indicates that the gold rally will continue. In addition to gold, the prices of many other assets such as global stocks have reached record highs. The proportion of gold in total assets is low, not only because the prices of other assets continue to rise, but also because of the massive issuance of financial securities. The restriction on the physical supply of gold means that the price of gold must bear the heavy responsibility of maintaining a reasonable proportion of assets.
Original title: "Gold has soared and has not seen the upper limit"
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