The Zhitong Finance App learned that Shenwan Hongyuan Securities published a research report saying that on September 20, the price of gold reached a record high; however, the divergence between the price of gold and actual interest rates and ETF holdings also gave rise to concerns about “fear of heights.” In the first wave of increases, central bank purchases of funds may be the driving force; recently, after US bond yields declined, the release of investment demand was the main reason. On the trading side, investment demand in Europe and the US is still dominated by the real interest rate framework, and we need to pay attention to the possible interpretation of interest rates on US bonds after the election is completed. If Trump is elected, the promotion of “tariff increases” may drag the US economy into recession, and “recession deals” will benefit gold; if Harris is elected, its subsidy policy for residents may support the resilience of US consumption, such as the opening of a “recovery deal,” or limit the room for rising gold prices.

1. Hot Thoughts: “Gold” at a New High?

(1) Why did the price of gold hit a new high? The central bank and investors have successively promoted

Recently, the price of gold once again reached a record high. As of September 20, COMEX gold closed at 2,622 US dollars/ounce, a record high. The gold trend since the beginning of the year can be divided into three stages: 1) from January 1 to April 17, the price of gold surged 14%; 2) from April 18 to June 25, gold consolidated and fell 2%; 3) Since June 26, gold has risen again and surged 13%. In the first wave of increases, central bank purchases of funds may be the driving force; recently, after US bond yields declined, the release of investment demand was the main reason. 1) In the first quarter of 2024, global central banks purchased a total of 300 tons, which is faster than in the fourth quarter of last year. 2) Since June 10, the real interest rate on 10y US bonds has fallen by 58bps, releasing demand for gold investment; as of September 17, net non-commercial gold longs have increased to 99.4%.

(2) Should the price of gold be “afraid of being high”? The long-term logic is still relatively smooth

There is a “fear of high” gold prices, or concerns about the divergence between the price of gold and real interest rates; this gap may be caused by the central bank's purchase of gold. Focus on inflation under the traditional framework,Opportunity costsInvestment demand dominates gold prices; since 2022, central bank purchases have increased dramatically, leading to an outward shift in the demand curve, leading to a widening gap between gold prices and actual interest rates. After including the central bank's gold purchases, the gold price center may be around 2,323 US dollars/ounce. Judging from the structure of foreign reserves such as China and India, there is still room for the central bank to buy gold; it is expected that the pace of purchasing funds will be maintained under the “passive reduction” of US debt. Central bank purchases may be dominated by some countries based on security and other considerations; gold from China, India, etc. accounts for a low share of foreign reserves, and there is still room. The pace of reduction in US debt holdings is more related to the pace of gold purchases. The maturity scale of medium- to long-term US bonds before 2026 is still increasing, and the pace of purchasing funds is expected to be maintained under passive holdings reduction.

(3) Possible interpretations of the price of gold? Focus on the US election and domestic economic expectations

On the trading side, investment demand in Europe and the US is still dominated by the real interest rate framework; focus on the possible interpretation of interest rates on US bonds after the election is completed. 1) If Trump is elected, the promotion of “tariff increases” may drag the US economy into recession, and the “recession deal” will benefit gold; 2) If Harris is elected, its subsidy policy for residents may support the resilience of US consumption, such as the opening of a “recovery deal”, or limit the room for gold prices to rise.

Currently, China's gold allocation may be overcrowded, but whether it will shift still needs to focus on changes in economic expectations. High demand for domestic gold investment, or allocation demand stimulated by poor performance of other assets such as the stock market. As of September 20, COMEX Gold'sRSIIt is 72.1. It is in the overbought range. However, until the relative attractiveness of other assets increased, the price of gold was asymmetrical to real interest rates or persisted for a long time.

2. Major Assets & Overseas Events & Data: US retail sales in August were stronger than expected, and the Federal Reserve cut interest rates beyond expectations

The Federal Reserve cut interest rates more than expected, and global capital markets fluctuated. The NASDAQ rose 1.5%, Nikkei 225 rose 3.1%, oil rose 4.0%, the yield on 10y US bonds rose 7bp to 3.73%, the US dollar depreciated to 7.04 against the offshore renminbi, and the yen depreciated 2.1% against the US dollar.

Harris leads the polls. As of September 19, the RCP poll showed that Trump's approval rating was 47.4%, Harris's lead was 49.4%, and Harris's lead was extended to 2% from last week (September 13). Among the seven swing states, Trump led in Georgia, Arizona, and North Carolina, while Harris led in Michigan, Wisconsin, Pennsylvania, and Nevada.

US retail sales in August were 2.1% YoY and 0.1% YoY, better than market expectations of -0.2%. Judging from the structure, the channels for groceries and online shopping are strong. As of September 14, the number of jobless claims at the beginning of the week was 0.219 million, lower than market expectations.

Risk warning: central bank gold purchases have slowed beyond expectations; US economic growth has exceeded expectations; demand for gold investment has weakened beyond expectations.

The article comes from the WeChat account “Shenwan Hongyuan Macro”, Zhitong Finance Editor: Liu Xuan.