The essence of gold: A credit commodity that preserves value and is biased against the US dollar Gold is a special commodity with the triple properties of commodity, currency, and finance. It is essentially a type of credit currency, which has the characteristics of preserving value and benchmarking against the US dollar. Value preservation is therefore highly inflationary; against the US dollar, the opportunity cost is the return rate of the US dollar, that is, the real interest rate in the US.

Driven branch: safe-haven investment with long-term allocation value

Gold is a recognized safe-haven asset and has a good return on investment in the long term. When the market experiences a black swan incident, risk aversion often pushes up the price of gold. In fact, safe-haven still affects the price of gold by affecting real interest rates: risk events → expectation that the central bank will lower nominal interest rates → real interest rates fall → gold prices rise. For example, in March 2020, risk aversion was strong in the market, but gold fell sharply, mainly because the market temporarily sold gold to obtain short-term liquidity. When the liquidity crisis disappeared, the price of gold rebounded restoratively.

50-year trend review: big inflation and big recession

Looking at the grand historical perspective, over the past 50 years since 1969, the price of gold has gone through 3 major cycles, with a total of 5 rounds of bullish market. Closely following the logic of “real interest rate = nominal interest rate - inflation”, any increase in gold prices can be included in three dimensions:

Level 1, the era of high inflation driven by global industrialization, manifests itself as a model of high inflation+strong interest rate hikes, where inflation dominates real interest rates and then triggers the gold bull market; the second level, the interest rate cut cycle caused by the recession in the US economy, shows a weak inflation+strong interest rate cut model. The greater the level of recession, the stronger the stimulus for interest rate cuts, which in turn increases the price of gold; third level, the impact of geopolitical events triggers risk aversion and thus stimulates the gold allocation. Here, we will review the market in a hierarchical manner according to the driving level to reveal the driving force behind the gold bull market.

Gold's future market outlook

Interest rates in the past ten years have been the anchor for short- and medium-term gold transactions. Following the US economic cycle, the US has gone from boom to recession, and the global market has poured into gold for safe haven. Although the current round of the US economy showed a resilient pattern, as high interest rates continued, it can be seen that the economic cycle gradually spread from a decline in front-end real estate and manufacturing to the back-end consumption and employment sectors. Although the downward trend is still strong and resilient, the weakening trend has not changed.

Southern Shanghai Gold ETF

The Southern Shanghai Gold ETF (159834) closely tracks price changes of gold assets. On the premise of seeking to minimize tracking deviations and tracking errors, it is committed to providing investors with investment returns close to performance comparison benchmarks.

Risk warning

1. Unexpected changes have occurred in the fundamentals of gold and precious metals, international markets, etc.; 2. Historical data estimates do not fully represent future performance.