The Zhitong Finance App learned that Huaxi Securities released a strategy research report saying that in the long run, gold is in a major upward cycle. First, in recent years, the size of US debt has accelerated, interest repayment pressure continues to rise, and US financial sanctions against Russia after the Russian-Ukrainian conflict have impacted US dollar credit. Due to concerns about the risk of US dollar credit and US dollar assets, central banks around the world have continued to raise gold reserves. Second, today's world is undergoing major changes that have not occurred in 100 years. The spillover risks from geopolitical conflicts between Russia, Ukraine, Palestine, and Israel have increased the appeal of gold as a safe-haven asset. Finally, buying on dips is an operational characteristic of central banks buying gold. If gold prices fall later, it is expected to drive central banks around the world to buy gold again, and the bottom of the gold price is more supportive.
The main views of Huaxi Securities are as follows:
1. The gold price drives the framework shift, and the global trend of gold purchases from the US dollar and central bank drives the upward trend in the gold price center.
Gold is regarded as a safe interest-free asset, and the actual interest rate or exchange rate is the opportunity cost of gold. The significant negative correlation between real interest rates and gold price trends shows that gold's financial attributes are driven. In the US dollar interest rate hike cycle, the financial properties of gold dominated. Since mid-2007, the real interest rate on US bonds showed a significant negative correlation with the trend of gold prices. However, starting in the second half of '22, the price of gold fluctuated in the same direction as the real interest rate several times, indicating that the financial properties of gold have weakened.
2. The Russian-Ukrainian conflict has accelerated global de-dollarization. Central banks are more willing to buy money due to concerns about the credit of the US dollar.
Both gold and the US dollar have the characteristics of international currencies. The central bank can control currency stocks and balance the balance of payments and exchange rates through the purchase and sale of gold. As far as reserves are concerned, earnings are not the main purpose, so the gold reserves held by the central bank remain relatively stable most of the time, and when the economy is at risk, some countries even choose to reduce capital raising pressure by selling gold. In recent years, the size of US debt has accelerated, interest repayment pressure continues to rise, and US financial sanctions against Russia after the Russian-Ukrainian conflict have impacted the credit of the US dollar. Central banks around the world have reduced their US dollar foreign exchange reserves and increased their gold reserves due to concerns about US dollar credit and US dollar asset risks. According to data from the World Gold Council, central banks made a net purchase of 1,037 tons of gold in 2023, a decrease of only 45 tons from the 2022 all-time high. Among them, the central banks of China, Poland, and Singapore ranked in the top three in the world in terms of gold purchases.
3. Buying on dips is an operational characteristic of the central bank's purchase of gold. Once the price of gold falls, it is expected to drive the central bank to buy gold again.
As of the end of June 2024, China's central bank's gold reserves were 72.8 million ounces, which remained unchanged for two consecutive months. The bank determined that this was related to the recent marked rise in gold prices. Judging from historical data, there is a negative correlation between the amount of gold purchased by the central bank and the price of gold. Buying on dips is an operational characteristic of the central bank of China's gold purchases. According to the 2024 central bank gold reserve survey released by the Gold Association, many central banks believe that the US dollar's global reserve position will continue to weaken. 29% of the central banks surveyed said they intend to increase their gold reserves within the next 12 months, and their intention to increase their gold holdings will reach a five-year high. Therefore, if gold prices fall in the future, it is expected to drive central banks around the world to buy gold again, and the bottom of the gold price is more supportive.
4. The US labor market has cooled down, and the probability that the Federal Reserve will cut interest rates in September has increased, but we need to pay attention to the disturbances in the US election.
According to data from the US Department of Labor, the US added 0.206 million new non-farm payrolls in June, higher than the expected 0.19 million, and lower than the revised value of 0.218 million in May. Meanwhile, a total of 0.111 million new non-farm payrolls were added in May and April, indicating that the US labor market may be lower than the initial value. Furthermore, the unemployment rate continued to rise. The US unemployment rate in June was 4.1%, higher than expectations and previous values, and the highest since November 2011. After the data was released, the market expected that the probability of interest rate cuts in September increased to above 70%, supporting the rise in gold prices. The subsequent focus will be on the US election in November, which may increase the volatility of the dollar and gold. Current poll data shows that there is a high probability that Trump will be elected president. Trump favors a weak dollar, but implementing a policy combination of “domestic tax cuts+additional tariffs” may once again trigger an upward trend in inflation.
Risk warning: The pace of the Federal Reserve's interest rate cuts fell short of expectations, the US economy exceeded expectations, changes in the geographical situation, etc.