2024-04-10 01:00:50
Gold continues to surge.
On April 9, the international gold price hit a new high intraday. As of 17:00 on the 9th, Beijing time, Flush data showed that London gold (spot gold) had reached a maximum of $2,358.77 per ounce. COMEX gold futures prices hit a maximum of $2,378.2 per ounce.
Analysts have a variety of answers as to what’s driving gold’s rise. However, market participants have also found that the current price of gold is rising at the same time as U.S. bond yields and the U.S. dollar, which is a clear departure from the previous perception of a negative correlation. The traditional gold price pricing logic has been weakened, and a new gold pricing mechanism with global central bank gold purchases as the core variable is “taking root.”
Gold price trends “deviate” from real interest rates
International gold prices have soared since the end of February, setting new record highs continuously. So far, spot gold has exceeded the $2,300/ounce mark and continues to rise close to the $2,400/ounce mark. The rise in spot gold prices has driven futures prices higher, and the cumulative increase in COMEX gold futures prices since March has exceeded 15%.
What are the driving factors behind the surge in gold prices? The traditional analysis framework believes that gold prices are mainly affected by factors such as the U.S. dollar index, real interest rates, interest rate cut expectations, and risk aversion. Yan Xiang, chief economist at Huafu Securities, told reporters that the traditional gold pricing mechanism is mainly determined by the actual interest rate of U.S. debt and risk aversion, with the former reflected in the opportunity cost of holding gold and the latter reflected in gold’s safe-haven properties.
According to analysts, generally speaking, gold is priced in U.S. dollars, and there is a certain substitution relationship between the two in the monetary system. Therefore, gold price trends are often negatively correlated with the U.S. dollar. In addition, according to historical experience, in a low interest rate environment, gold also has a strong negative correlation with the actual interest rate of U.S. debt.
However, according to market observers, the recent rise in gold prices has clearly deviated from the logic of the above explanation. Guosheng Securities research report believes that this round of gold price trends can be divided into two stages: In the initial stage, the sharp rise in gold prices is still supported by fundamentals. The U.S. manufacturing PMI announced at that time was significantly lower than expected in February, and expectations for an interest rate cut by the Federal Reserve increased. , the U.S. dollar and U.S. bond interest rates fell in response. However, since late March, a number of data released by the Federal Reserve have continued to suppress interest rate cut expectations. The US dollar and US bond interest rates have entered an upward channel, while gold continues to “surge”.
One of the major data supports that following the strong U.S. non-agricultural data last Friday (April 5) triggered hawkish pricing in the bond market, the international gold price still rose strongly, closing up 1.7% that day, and the cumulative increase for the week exceeded 4 %. Huaan Futures said that the recent negative correlation between gold prices and real interest rates, the US dollar index, etc. has gradually decreased, while the positive correlation with inflation expectations has continued to rise.
Traditional gold price pricing logic has been weakened
Why does gold price performance deviate from “common sense”?
On the one hand, gold’s short-term departure from fundamentals may be due to trading factors. Jerry Chen, a senior analyst at Jiaqiang Group, said that the rise in the U.S. dollar and U.S. bond yields in recent weeks cannot stop gold’s “perfect storm”. The impact of economic data and interest rate prospects on gold prices is weakening, replaced by gold’s own momentum, Market sentiment, and risk aversion factors.
“The momentum effect and ‘short squeeze’ following breaking new highs may be the main reasons.” Xiong Yuan, chief economist of Guosheng Securities, analyzed that following gold prices hit a record high in early March, speculative long positions increased rapidly and short positions decreased rapidly, which may This triggered a large amount of buying by the momentum strategy, and in the process, a large number of short positions were stopped and left. The “short squeeze” effect also expanded gold’s gains. From a historical perspective, every time gold breaks a new all-time high, it usually continues to rise rapidly in the short term, which is consistent with this round’s performance.
On the other hand, the weakening of traditional gold pricing logic may be related to the strengthening of gold’s monetary attributes under the narrative of “de-dollarization”. The fixed income team of Huatai Securities analyzed that from the perspective of monetary attributes, the Federal Reserve continued to expand its balance sheet following the epidemic, and debt problems caused “cracks” in the credit of currencies such as the U.S. dollar, highlighting the “de-fiatization” attribute of gold.
Yanxiang believes that the continued divergence between the actual interest rate of U.S. debt and the price of gold reflects that the traditional gold pricing logic has been weakened to a certain extent. The monetary attributes of gold have been greatly enhanced, especially in the context of intensifying anti-globalization and the lack of debt constraints in Europe and the United States. The credit of the U.S. dollar has been shaken, and the alternative value of gold compared to the U.S. dollar has continued to be valued.
Global central banks’ “gold buying craze” has become an important marginal force
The alternative value of gold compared to the US dollar can be reflected in the “gold buying craze” of global central banks.
The latest data released by the International Monetary Fund (IMF) shows that in January 2024, global official gold reserves increased by 39 tons; as of the end of January 2024, global official gold reserves totaled 35,938.6 tons. The World Gold Council stated that central bank gold purchase demand in 2023 was the second highest in the association’s records, only slightly lower than the historical record set in 2022.
Global central bank gold purchase demand has become an important factor that has continued to push up gold prices in recent years. Ming Ming, chief economist of CITIC Securities, told reporters that in an environment of rising global inflation expectations, increasing financial instability and frequent geopolitical conflicts, global central banks’ demand for gold is rising rapidly. At present, the gold purchasing behavior of global central banks has become an important marginal force in determining the trend of gold prices.
Against the background that the explanatory power of traditional gold price pricing logic is getting weaker and weaker, some analysts believe that a new gold pricing mechanism with global central bank gold purchases as the core variable is “taking root.”
The fixed income team of Huatai Securities stated that in the past two years, changes in the geopolitical situation and the high interest rate environment have resulted in the old gold pricing system becoming increasingly weak in explanatory power, while a new gold pricing mechanism with the central bank’s gold purchase as the core variable has gradually emerged. The team further analyzed that behind the gold purchase behavior of global central banks is a concentrated expression of the needs for “decentralization” and geo-hedging. The central bank’s gold purchase behavior not only reflects the recognition of gold’s safe-haven properties, but also shows concerns regarding the stability of the traditional monetary system as the Federal Reserve’s balance sheet continues to expand.
There are also views that the traditional analysis framework has not failed, and the real interest rate is still an important factor in determining the trend of gold prices. Yan Xiang said that compared with industrial metals and energy, gold’s supply and demand balance sheet does not have a prominent impact on gold prices. In theory, gold does not have a particularly strong pricing anchor. However, in recent years, once morest the background of continued attacks on the credit of the US dollar, the continued gold purchases by global central banks have indeed had a greater driving effect on the rise in gold prices.
“In the medium to long term, the core factors of gold pricing are still real interest rates, risk aversion and the monetary attributes relative to the US dollar. It is still a high probability event that the United States will enter an interest rate cut cycle and the real interest rate will fall. In addition, the central bank’s gold purchase has not yet been completed, both It will bring support to gold prices in the medium and long term.” Yan Xiang said.
(Editor: Wen Jing)
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