The current Gold price has continuously reached new historical highs, and the Bullish drivers are expected to continue.
According to the Zhitong Finance APP, Guotou Securities has released a Research Report stating that since 2024, the performance of Gold prices has remained strong. After Trump's victory in the USA election, Gold prices briefly adjusted before rising again, continuously setting new historical highs, with London Gold prices approaching 3000 USD/ounce. Changes in long-term factors related to physical demand and macro trends have opened up space for the increase in Gold prices, and most of these factors are expected to persist for a long time. The core drivers mainly include 1) hedging against the uncertainty of US tariff policies and the trends in US stocks; 2) hedging against the upward risk of inflation; 3) hedging against the weakening of US dollar credit. Currently, Gold prices are continuously setting new historical highs, and it is expected that the bullish drivers will continue.
Guotou Securities' main points are as follows:
Hedging against uncertainties and inflation risks attracts capital inflow.
After Trump's election, uncertainty has increased with policies, represented by tariff policies. The game factors during the implementation of tariff policies have increased the uncertainty of economic policies. The market's changing perception of the AI narrative in US stocks has driven capital inflow into Gold, which has safe-haven attributes.
Gold prices are positively correlated with inflation and price concerns about inflation. Since Trump's inauguration, multiple executive orders related to immigration management have been continuously introduced, and several tariff measures have also been announced for Canada and Mexico, which means that US inflation is likely to rebound significantly in 2025, benefiting Gold prices from the upward inflation. Considering that tax cuts are relatively delayed in implementation, if a stagflation environment occurs, it would be more favorable for Gold.
Gold is the opposite of currency credit and may still have upward pricing space.
The increase in gold purchases by central banks is a direct manifestation of concerns over currency credit among sovereign nations. The global central bank gold purchase volume remains high and is expected to rise significantly in Q4 of 2024. After a six-month pause in gold purchases, our central bank will resume its shareholding in gold in November 2024, reflecting the trend of gold as a strategic asset being favored by Emerging Markets.
The anticipated expansion of the USA's debt and fiscal deficit is a reason for ongoing concerns regarding currency credit. Implementing the Trump administration's plan to reduce the deficit may encounter significant difficulties, and the expectations for budget deficit reduction may be revised. If the Republican Party extends the Tax Cuts and Jobs Act (TCJA), which is set to expire in 2025, it will raise the deficit levels. Gold prices act as an inverse indicator of currency credit; if gold prices are considered in relation to the expansion of debt, there may still be room for gold price increases.
Concerns over tariffs have led to tight overseas gold spot supplies, with a gradually strengthening trend of pricing power shifting east.
Amid concerns over increased tariffs, gold spot is being transported from London to the USA, intensifying the liquidity strain in the London gold market and catalyzing an increase in gold prices in the short term. If gold falls under the increased tariffs, the transportation of gold between London and the USA will continue, and the tight spot supply situation will persist. If gold is not included in the increased tariff list, the issue of tight spot supply is expected to ease.
From the perspective of core gold pricing entities, the trend of pricing power shifting east is gradually strengthening. With a significant increase in net inflow of Gold ETF in Asia, represented by our country, continuous gold purchases by our central bank, rising demand for Other gold investments, and the entry of Insurance funds into the gold market, the trend of gold pricing power shifting east is expected to form and continue.
Investment Suggestions
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Risk warning:
USA's fiscal and monetary policy exceeded expectations, the central bank's gold purchasing pace changed, and Metal prices fluctuated significantly.
