Guide reading
Gold in troubled times, antiques in prosperous times. Since 2018, the world has entered a turbulent era. Affected by the downward trend of the world economy, global trade frictions, pandemics, global currency flooding, anti-globalization and populism, the price of gold has continued to rise since 2018. At present, it has risen from a low of US $1178.4 / oz to more than US $1900 / oz, an increase of more than 60 per cent.
How to view the future trend of gold? We start with the monetary attribute, financial attribute and commodity attribute of gold, establish the analysis framework of gold, and look forward to the future trend of gold price on this basis.
Abstract
1 the three-dimensional analysis framework of gold
1.1 Monetary attribute
1.1.1 the price of gold is negatively correlated with the dollar index
1.1.2 Gold price is positively correlated with risk index
1.2 Financial attributes
1.2.1 the price of gold is negatively related to the level of real interest rates.
1.2.2 the price of gold is positively correlated with inflation.
1.3 Commodity attributes
1.3.1 Gold supply has a limited impact on gold prices
1.3.2 Gold price is positively correlated with demand level
1.4 Summary: actual factors affecting the price of gold
2 Review of the trend of historical gold and its main influencing factors
2.1 the first round of gold bull market (1971-1980)
2.2 the first round of golden bear market (1981-2000)
2.3 the second round of gold bull market (2001-2012)
2.4The second round of golden bear market (2012-2018)
2.5 the level of factors that affect the fluctuation of gold price
3 the prospect of gold price
1 the three-dimensional analysis framework of gold
In July 1944, representatives of 45 countries gathered in Bretton Forest in the United States to reach an agreement that currencies were pegged to the US dollar, and ministries of finance and central banks exchanged gold with the United States at 35 US dollars per ounce. Since then, gold prices have remained stable for a long time. With the decline in US imports and the continuous increase in foreign investment, coupled with the Cold War, the Korean War and the Vietnam War, US gold stocks decreased. On August 9, 1971, US President Nixon declared that "the United States has been unable to fulfill its international commitment to peg the dollar to gold." the Bretton Woods system failed. On January 8, 1976, the International Monetary Fund adopted an agreement on the reform of the international monetary system at a meeting in Jamaica, allowing gold to be easily exchanged with foreign exchange and local currencies.
Since then, the price of gold began to be affected by various market factors, and the price of gold entered a period of free floating.Gold has monetary attribute, financial attribute and commodity attribute at the same time, and the three attributes determine the trend of gold price. We start with these three attributes to establish the analysis framework of gold.
1.1 Monetary attribute
Gold has existed as a currency for a long time. "money is naturally not gold, but gold is naturally money." On the one hand, gold has the characteristics of easy to divide, difficult to destroy, high unit value, easy to identify, easy to divide and so on, so it is a high-quality money carrier in history. On the other hand, under the current credit monetary system, gold still has reserve function and payment function, so the central banks of developed countries still store a lot of gold, and one of the major directions of international reserve diversification of central banks in emerging markets is to increase their holdings of gold.Under the monetary attribute of gold, its price is affected by two major factors, one is the substitution with the denominated currency US dollar, and the other is the risk aversion attribute of the currency.
1.1.1 the price of gold is negatively correlated with the dollar indexDollar index
The impact on gold is divided into two levels: first, gold is priced in US dollars in the international market.Therefore, the dollar index directly affects the price of gold. When the dollar falls, the value of gold itself does not change, it is reflected in the rise of gold price, and the relationship between the two tends to be a reverse indicator of the same phenomenon.
二Gold and the dollar have currency at the same time.Sex has the effect of mutual substitution.When the value of the dollar falls, the status of gold as a currency rises and the price rises, the two tend to be causal.From the historical data, gold and the dollar index have a certain negative correlation, the correlation coefficient is-0.45.
1.1.2 Gold price is positively correlated with risk index
As the human currency enters the credit standard, when the national credit crisis occurs, the credit currency will depreciate, that is, the purchasing power of the currency itself will depreciate relative to the purchasing power of the outside world. In order to keep their asset levels intact, residents will convert their monetary assets into other unaffected currencies as much as possible.
In times of crisis, compared with the US dollar, the Swiss franc and other credit currencies with risk aversion, gold, as a general equivalent, has a unique historical position and is socially recognized as a safer safe haven asset, pushing up the price of gold.VIX is the weighted average index of the implied volatility of S&P500 's constituent stock options, which is often called the investor panic index. We use VIX as the risk index, which represents the expectation of the future risk degree of the market.From the historical data, there is a significant correlation between gold price and risk index during the European debt crisis in 2012, the Brexit vote in 2016 and the impact of the COVID-19 epidemic in 2020.
1.2 Financial attributes
As one of the major assets, gold has the attribute of financial investment products. Under the financial attribute of gold, its price is affected by two major factors, one is due to the "zero coupon" of gold, its price is negatively related to the level of real interest rate, and the other is that as a hedge investment, it is positively related to the level of inflation.
1.2.1 the price of gold is negatively related to the level of real interest rates.
The real interest rate is one of the important factors affecting the price of gold.Gold has the characteristic of "zero coupon". The only income that investors hold gold comes from the rising price of gold. because gold cannot generate interest, when the real interest rate rises, the income of holding other interest-bearing assets such as stocks and bonds is higher, and the price of gold falls. When the real interest rate falls, the income of holding other financial assets goes down, the relative value of gold increases, and the gold price rises, that is, the real interest rate is the opportunity cost of holding gold.
Taking the US 10-year inflation indexed Treasury bond (TIPS) as the index of real interest rate, from the historical data, there is an obvious negative correlation between TIPS and gold price, and the correlation coefficient is-0.88. The relative value of gold rose significantly after the world's major economies entered negative interest rates.After the financial crisis, countries have stepped up monetary policy stimulus. Since 2014, the European Central Bank and the Bank of Japan have implemented negative interest rate policies one after another, and the scale of global negative interest rate bonds has increased rapidly, which means that holding bonds will face certain losses. reduce the opportunity cost of investing in gold, and the relative value of gold has increased significantly.
1.2.2 the price of gold is positively correlated with inflation.
Gold investment has hedging value. When serious inflation occurs, gold can reduce the losses caused by currency devaluation and reduce market risk.Although the inflation level of each country is affected by each country's own economic policy, the inflation cycle is often consistent, and the price of gold rises during the period of rising inflation.
From the perspective of historical data, there is a certain correlation between inflation and gold price as a whole, and the correlation between US inflation data and gold price is 0.45.However, the relationship between gold and inflation has two characteristics.：First,In the period of stable inflation, the correlation between inflation and gold price is weak, but in the stage of large inflation fluctuation, gold price tends to rise significantly.
Second,Overall, the gold price peak is 2-4 months ahead of the CPI high, that is, the real impact on gold prices should be inflation expectations. We use crude oil futures prices to measure inflation expectations and test whether inflation expectations will push up gold prices. We find that in most of the time, crude oil futures prices have almost the same trend as gold spot prices, with a correlation of 0.79.
1.3 Commodity attributes
Gold not only can be used as a currency and financial investment, but also has commodity properties. As a commodity, gold can be used for daily consumption and industrial production, or for storage and trading.Under the commodity attribute of gold, its price is affected by two major factors, one is affected by the supply of gold, the supply of gold is negatively related to the price of gold, and the other is affected by the demand for gold, the demand for gold is positively related to the price of gold.
1.3.1 Gold supply has a limited impact on gold prices
The supply of gold mainly includes mineral gold, producer hedging, recycled gold and official sales.Since the advent of human civilization, the world has mined 197000 tons of gold, and there are still about 47000 tons of gold to be mined, meaning that about 76 per cent of the world's gold reserves have been mined. Since 2003, the annual supply of gold has not changed much, about 4000 tons, accounting for only 2 per cent of the stock.
Specifically:
Mineral gold:Gold mainly comes from natural mineral deposits. Since 2003, the supply of mineral gold has gradually increased from 2600 tons to about 3500 tons in 2019, accounting for 60-80% of the total gold supply. However, gold vein exploration is difficult, and mine construction is difficult. It takes an average of 10 years for a mine to enter a stable ore mining stage, which makes the gold supply rigid and difficult to greatly increase the mineral gold supply in a short time. The impact on gold prices is limited.
Manufacturer hedging:Compared with the total gold supply, the hedging volume of producers is very small and the impact is limited.
Recycled money:Gold can basically not be destroyed, through the recycling of old jewelry and other gold-containing products re-refined gold into recycled gold. Since 2003, the supply of recycled gold has gradually increased from 900t to about 1200 t, accounting for 20% of the total gold supply, accounting for 40% of the total gold supply, accounting for 40% of the total gold supply, which has declined year by year. There is a positive correlation between the supply of recycled gold and the price of gold, mainly because when the price of gold rises, people have more incentive to sell gold products into recycled gold, and the supply of recycled gold tends to be the result of gold price fluctuations rather than the cause.
The central bank sells gold:Central banks and international organizations hold more gold reserves, so their gold sales are also the main source of gold supply. But after the financial crisis, central banks began to switch from selling to buying, eliminating the impact on the supply side.
On the whole, on the one hand, the growth of mineral gold is slow, and the supply of recycled gold is more inclined to the result of gold price fluctuations, on the other hand, the annual supply of gold is low, which is not enough to have a significant impact on gold stock, so the impact of gold supply on gold price is limited.
1.3.2 Gold price is positively correlated with demand level
The demand for physical gold mainly includes gold jewelry demand, investment demand, industrial demand and official reserve demand.According to the World Gold Council, world gold demand has been on a downward trend since 2011, gradually falling from 4773 tons to 4368 tons in 2019. From the point of view of the demand structure, the demand for gold jewelry accounts for the highest, followed by investment demand, industrial demand is relatively stable, and the demand for official reserves has increased year by year after 2010.
Specifically:
Jewelry demand:Gold jewelry demand is the main source of gold demand, but it has a negative correlation with gold price, and tends to be the result of gold price fluctuation. Since 2013, with the gradual rise in gold prices, gold jewelry demand has gradually declined, from about 2700 tons to 2100 tons, currently accounting for about 50 per cent of gold demand.
Investment demand:The investment demand for gold fluctuates greatly and has the highest correlation with gold price. Since 2003, the investment demand for gold has risen from a low of about 600t / a to a maximum of 1700 t / a, and currently accounts for about 30 per cent of the gold demand. The investment demand for gold can be subdivided into gold bars and coins, as well as ETF demand, in which the demand for gold bars and coins is large and stable, accounting for more than 70% of the investment demand, and the demand for ETFs fluctuates greatly, accounting for more than 40% at the high point, which can quickly reflect the market's preference for gold. As the overall investment demand fluctuates greatly, it is the most important factor affecting the change of gold demand.
Industrial demand:The industrial demand for gold is the most stable, mainly used in the electronics industry, medical devices and other fields. Since 2003, the overall demand of the gold industry has not fluctuated much, basically maintaining the range of 300-400 tons per year, accounting for about 7% of the total gold demand from 13%. Industrial demand has little impact on the change of total gold demand.
Official reserve requirements:After the financial crisis, central banks and other institutions maintained the trend of increasing their holdings of gold, thus selling 300-600 tons of gold per year and buying 500-700 tons per year. At present, the official reserve demand accounts for about 15% of the gold demand. The central bank's gold purchase behavior has become the main factor driving up the gold price. At present, the proportion of gold in international reserves is still not high, and compared with developed countries, the proportion of gold reserves in emerging market countries is still significantly low. Emerging markets, represented by China, have taken increasing the proportion of gold reserves as a major direction of international reserve diversification. In the future, the continuous gold purchase behavior of emerging market central banks may become a long-term gold price support.
On the whole, the overall gold demand and industrial demand do not fluctuate much, accounting for a combined ratio of about 50-60%, which determines the total demand level of gold and the central level of gold price. In the short term, investment demand fluctuates greatly, which determines the short-term price of gold. In the long run, official reserve demand is the main driving force of the rise in long-term gold demand, which determines the long-term price trend of gold.
1.4 Summary: actual factors affecting the price of gold
Summing up the various factors that affect the gold price, it is mainly divided into six aspects. However, from the point of view of the actual driving factors behind the six major factors, it is closely related to the US economy and real interest rates, as well as the changes in the central bank's gold buying / selling behavior.
(1) US Dollar Index:The change of the dollar index comprehensively reflects the changes of the domestic economic fundamentals of the United States relative to foreign countries, when the US economy is stronger, the real interest rate rises, the sovereign credit level increases, and the dollar index strengthens. The dollar index ultimately represents the US economy and the level of real interest rates.
(2) risk coefficient:The logic behind global political emergencies, wars and economic and financial crises is to strengthen market concerns about the future economic outlook, leading to a sharp decline in nominal interest rates, which are falling faster than inflation expectations, leading to a decline in real interest rates.
(3) effective interest rate:The real interest rate is nominally the opportunity cost of holding gold, reflecting the fundamentals of the US economy, nominal interest rates and inflation.
(4) inflation level:Rising inflation has led to a fall in real interest rates. From the point of view of the relationship between inflation and gold price, in the inflation stable stage, the correlation between inflation and gold price is weak, mainly because the nominal interest rate is the main factor affecting the real interest rate in the inflation stable stage, but in the period of large fluctuations in inflation, gold prices tend to rise significantly, mainly because the rapid rise in inflation depresses the level of real interest rates.
（5) supply level:As the level of gold supply is basically stable, the central bank's gold sales behavior is the main fluctuating factor affecting gold supply.
(6) demand level:Due to the long-term stability of gold demand and industrial demand, the main factors behind investment demand are the level of real interest rate, inflation, economy, risk aversion and other factors, so the main demand variable of gold is the change of long-term gold purchase behavior of the central bank.
In addition, the liquidity shock during the financial crisis has also become a major factor affecting the short-term gold price.During the financial crisis, the risk appetite of the market declined rapidly, the redemption pressure of financial products increased, the short-term liquidity of the market shrank sharply, causing a liquidity crisis, the risk aversion role of gold gave way to liquidity demand, and the sell-off of gold caused the price to fall.
2 Review of the trend of historical gold and its main influencing factors
From the collapse of the Bretton Woods system in 1971 and the market-oriented fluctuation of gold price to 2018, gold has experienced two rounds of 10-year bull market, a 20-year bear market and a 5-year bear market. Under the large bull-bear cycle, there are 6 small uplink cycles and 4 downlink cycles.By reviewing the historical trend of gold, we focus on analyzing the dominant factors of each cycle and the main reasons for the reverse small cycle in the large cycle, in order to rank the importance levels of the factors that affect the gold price.
2.1 the first round of gold bull market (1971-1980)
The first round of gold bull market began in 1971, when the price of gold rose from US $37.4 / oz to US $850 / oz in 1980, with a total increase of 2173%.At this stage, gold decoupled from the dollar, opened market-oriented trading, superimposed two oil crises led to rising inflation, the US economy stagnated, real interest rates fell sharply, and gold prices rose rapidly to an all-time high.
Phased dominant factors:（1）Bull market stage: 1971 to 1974, up 422.2%During this period, the price of gold rose from 37.4 US dollars per ounce in 1971 to 195.3 US dollars per ounce in 1974, an increase of 422.2 per cent.
From the perspective of the leading factors, the first is the actual depreciation of the US dollar and the return of gold to its true value.In 1971, the American economy was dragged down by the war, and the real value of the dollar decreased. After Nixon announced that the dollar would not be exchanged for gold, the dollar was decoupled from gold, forming a market-oriented pricing mechanism and the return of gold value.
Second, the oil crisis broke out and the US economy fell into stagflation.From 1973 to 1975, the first oil crisis broke out, and oil prices skyrocketed, which had a tremendous impact on the industrial system of the United States and other developed countries. CPI in the United States has continued to rise since 1973, with a peak of more than 12 percent. At the same time, the US economy has declined significantly since 1973, the growth rate of GDP has dropped from nearly 8 percent to-2 percent, falling into stagflation, and real interest rates have dropped sharply.
（2）Bear market stage: 1974 to 1976, down 47%During this period, the price of gold fell 47 per cent from $195.3 / oz in 1974 to $103.5 / oz in 1976.Dominant factor: the US economy recovers and the dollar index strengthens.Since the second quarter of 1975, the US economy has recovered for five consecutive quarters, and GDP growth has returned from-2 per cent to 6 per cent. At the same time, the dollar index began to strengthen. Although inflation remains at a relatively high level at this stage, the US economic recovery is the dominant factor in the downward trend.
（3）Bull market: 1976 to 1980, up 721%During this period, the price of gold rose from US $103.5 / oz in 1976 to US $850USD / oz in 1980, an increase of 721%.
From the perspective of the main factors, first, the US economic recovery slows, the currency is loose, and the US dollar depreciates.Since 1976, the pace of economic recovery in the United States has slowed down, and the growth rate of GDP has dropped from high shocks. At this stage, the Federal Reserve regards the total amount of money as the intermediate target of monetary policy, mainly based on the quantitative regulatory framework, increasing monetary easing, the growth rate of M1 goes up, and the dollar index weakens. However, before the outbreak of the oil crisis in 1979, the price of gold showed an overall upward trend, but by a small margin.
Second, the second oil crisis broke out and inflation expectations were high.When the second oil crisis broke out from 1979 to 1980, oil prices soared, rapidly pushing up inflation expectations, which reached 14.8% in 1980. At this stage, the economy fell back rapidly, the problem of stagflation highlighted, and the price of gold skyrocketed at this stage, reaching an all-time high.
（4）Summary
At this stage, the trend of gold basically follows the fundamentals of the US economy and real interest rates:From the perspective of the large cycle, first, the stagflation of the US economy is the main factor leading to the rise of gold prices at this stage.The reasons behind this include rising inflation, a significant decline in US economic growth, lower interest rates by the Federal Reserve, a sharp drop in real interest rates, capital outflows and a decline in the dollar index.
Second, there were two oil crises in the 1970s, and the demand for risk aversion was equally significant.From a small cycle point of view, between the two oil crises, the short-term recovery of the US economy and the short-term correction of gold prices are also in line with the fundamentals of the US economy.
2.2 the first round of golden bear market (1981-2000)
The first round of gold bear market began in 1980, when the price of gold fell from US $850 / oz to US $252.8 / oz in 1999, with a total decline of 70.2%.At this stage, the world economy as a whole entered a period of "great relaxation", with low oil prices, low inflation, declining economic fluctuations, rising potential economic growth rates brought about by the information technology revolution, sustained economic improvement in the United States and major developed countries, and higher real interest rates. Gold has seen a bear market for nearly 20 years.
Phased dominant factors:
（1）Bear market stage: 1980 to 1985, down 66.6%During this period, the price of gold fell from 850 US dollars per ounce in 1980 to 284.3 US dollars per ounce in 1985, a drop of 66.6 per cent.
From the perspective of the leading factors, the first is the combination of monetary tightening and supply-side structural reform.The US economy recovers.In order to deal with the problem of stagflation, on the one hand, the Federal Reserve adopted a tight monetary policy to control the growth of money supply. From the early 1980s to the early 1990s, the growth rate of M2 in the United States continued to decline, effectively controlling inflation, on the other hand, the Reagan administration promoted supply-side reforms, large-scale tax cuts, deregulation, the US economy turned to recovery, and labor productivity increased.
Second, the Latin American debt crisis broke out, pushing up the dollar index.After the outbreak of the Latin American debt crisis, the return of the dollar pushed up the dollar index, causing the price of gold to fall further. However, after the Latin American debt crisis, the safe-haven nature of gold appeared in the short term. After the debt crisis first broke out in Mexico in 1982, the price of gold rose briefly, but then entered the falling range again.
(2) bull market stage: 1985 to 1987, up 75.8%During this period, the price of gold rose from 284.3 US dollars per ounce in 1985 to 499.8 US dollars per ounce in 1987, an increase of 75.8 per cent.Dominant factor: in 1985, the United States signed the Plaza Accord, and the dollar depreciated rapidly.After two oil crises and stagflation, the driving force of economic growth in the United States has been weakened. in order to enhance the export competitiveness of American products and improve the trade deficit, the United States signed the Plaza Agreement with other countries in 1985, and the dollar depreciated sharply. Gold has had a two-year bull market.
(3) bear market stage: 1987 to 2000, down 49.4%During this period, the price of gold fell from 499.8 US dollars per ounce in 1987 to 252.8 US dollars per ounce in 1999, a drop of 49.4 per cent.
From the perspective of the leading factors, the first is the rapid economic growth of the United States and the low level of inflation.Since 1987, with the improvement of US exports and the beginning of the information technology revolution in the 1990s, the US economy as a whole has maintained relatively high growth, with an increase in potential economic growth and a low level of inflation. At this stage, the Fed's monetary policy has shifted from a quantitative regulatory framework to a price-based one, basically maintaining a tightening trend, with the appreciation of the US dollar and a steady rise in real interest rates.
Second, the political crisis and the Asian financial crisis have not significantly boosted the price of gold.The Gulf War broke out in 1990-1991 and the Asian financial crisis broke out in 1997. however, the price of gold fluctuated only slightly in the short term and did not show any trend changes. during the Asian financial crisis, gold prices even continued to decline because a large amount of money returned to the US dollar and pushed up the US dollar index.
The reason is that the risk events at this stage did not significantly affect the fundamentals of the US economy:Political crises such as the Gulf War to a certain extent highlighted the entities of US military strength and increased investors' confidence in the US dollar; as the Asian financial crisis did not have a significant impact on the US economy, it increased the attractiveness of the US dollar as a safe haven asset, and the price of gold fell.
（4）Summary
At this stage, the trend of gold still mainly follows the fundamentals of the US economy, but the overall relationship with inflation and the dollar index has weakened. However, the signing of the Plaza Accord has a significant short-term impact on the dollar index, and gold prices have a reverse bull market cycle during the bear market:
In terms of the large cycle:
1) after the supply-side reform in the United States, the momentum of economic growth has increased, the information technology revolution has been superimposed, the potential economic growth rate has increased, the level of superimposed inflation has been lower, and real interest rates have risen.
2) inflation levelThere is no obvious trend and no significant inflation expectations at this stage.
3) Dollar IndexThere is also no obvious trend at this stage.
4) there are several political conflicts and regional financial crises at this stage.But none of them had a trend impact on the price of gold.In terms of small cycles, major events affect the dollar index, leading to a two-year bull market in the golden bear market cycle.There was a short two-year bull market cycle in 1985-1987, mainly due to the sharp depreciation of the US dollar after the signing of the Plaza Accord in 1985, so the price of gold rose significantly despite the overall strong economic fundamentals.
2.3 the second round of gold bull market (2001-2012)
The second round of gold bull market began in 2001, when the price of gold rose from US $256.0 / oz to a peak of US $1895 / oz in 2011, with a total increase of 640.4%.This is the longest period of liquidity flooding in history, with central banks stepping up monetary easing to hedge against the negative effects of frequent economic and financial crises, terrorist incidents and geopolitical crises. After a long period of easing, inflation expectations rose, real interest rates fell, the dollar index weakened, and gold showed a big bull market.
Phased dominant factors:(1) Bull market stage: 2001 to 2003, up 63.0%At this stage, the price of gold rose from $256.0 / oz to $417.3 / oz, an increase of 63.0 per cent.From the perspective of the leading factors, first, the Internet bubble and the "9 / 11 incident" have dealt a heavy blow to the US economy, monetary policy has continued to be loose, and the dollar index has fallen.At this stage, risk events continued to impact the US economy. At the beginning of 2000, tightening monetary policy, liquidity shift, tighter regulation and other factors led to the bursting of the technology stock bubble. Within a year, the NASDAQ index fell from 5000 points to more than 1500 points.
The "9 / 11 incident" in 2001 further aggravated the market panic, and the US economy declined rapidly. The Federal Reserve has cut interest rates 13 times in a row to hedge against the economic downturn. From the beginning of 2000 to June 2003, the federal funds rate fell from 6.5% to 1%, and the dollar continued to depreciate. From 2001 to 2003, the dollar index fell from 110 + to below 90.Second, the regional situation is turbulent and the global risk aversion mood is increasing.。The war in Iraq began in 2003, the terrorist attacks in the Middle East intensified day by day, and geopolitical tensions continued to push up the price of gold.
(2) Bull market stage: 2004 to 2006, up 93.3%At this stage, the price of gold rose from $375.0 / oz to $725.0 / oz, an increase of 93.3 per cent.From the perspective of the leading factors, first, the growth of the US economy is weak relative to China and the euro zone, and the dollar index is weak.At this stage, the economic growth of the euro zone and China is much higher than that of the United States, leading to global economic growth, while the US GDP continued to decline after the interest rate hike cycle began in 2004, and the dollar index fell.Second, the geopolitical crisis, inflation expectations and risk aversion surged.
1) the price of oil has skyrocketedIn September 2004, under the influence of the Iraq war, the international crude oil price once again exceeded 40 US dollars per barrel. Since then, it has risen all the way and exceeded 70 US dollars per barrel in 2006.
2) Iran nuclear crisisIn 2005, Iran resumed and intensified uranium enrichment, which intensified the contradiction between the United States and Iran on the nuclear issue.Third, the demand for investment is high.In 2003, Greenspan relaxed the commodity authority of international investment banks, gold ETF was born, and investment demand was stimulated. In 2004, SPDR Gold Trust was listed on NASDAQ and became the largest and most liquid gold ETF.At this stage, the liquidity crisis triggered a short-term fall in gold prices.。The interest rate hike cycle in the United States from June 2004 to July 2006 punctured the real estate market bubble. from the second half of 2006, house prices began to fall, the subprime mortgage crisis initially appeared, and the liquidity crisis triggered short-term fluctuations in the gold market. From May to October 2006, gold prices fell slightly by 22.7%.
(3) bull market stage: 2007 to 2012, an increase of 211.5%
At this stage, the price of gold rose from US $608.4 / oz to US $1895.0 / oz, an increase of 211.5%.
First, the financial crisis, the European debt crisis broke out one after another, the economy was in the doldrums, central banks adopted ultra-loose monetary policies to hedge, and real interest rates fell.The subprime mortgage crisis broke out in 2007, and then it deepened and evolved into a global financial crisis. In 2010, the European debt crisis broke out, and the global central bank responded to the ultra-loose monetary policy. The Federal Reserve implemented QE in 2008, 2010 and 2011 respectively, and the speed of money delivery accelerated significantly. In 2011, the euro zone continued to cut interest rates until it entered the era of zero interest rates, and real interest rates fell to negative values.
Second, risk events occur frequently, and the market has a high demand for gold risk aversion.
1) S & P downgraded the long-term sovereign credit rating of the United States in 2011Causing the global rethinking of the dollar system, and the dollar index continues to fluctuate
2) the degree of global instability deepensIn 2011, "Arab Spring" and "Occupy Wall Street" evolved successively, class contradictions intensified and social unrest. The continuous outbreak of short-term risk events triggered a safe-haven demand for gold.
Third, the demand for official reserves has increased.After the financial crisis, countries' confidence in the US economy and the strength of the US dollar decreased. Central banks in India and other countries bought gold aggressively. Since June 2009, the growth rate of world gold reserves has changed from negative to positive. Since then, the reserves have continued to increase.The liquidity crisis unfolded and gold prices plummeted briefly.After the outbreak of the subprime crisis, with the spread of the crisis, the liquidity panic appeared in the market, and credit spreads and interbank lending rates rose abnormally in the short term. In September 2008, the market panic reached its peak due to the collapse of Lehman Brothers. The safe-haven demand for gold gave way to liquidity demand, and the gold price fell sharply by 20% in October 2008 as investors sold gold for liquidity.
(4) Summary
By affecting the fundamentals of the US economy, risk events at this stage have a trend impact on the price of gold, superimposed on the fact that central banks of various countries use ultra-loose monetary policies to hedge against downward pressure on the economy, liquidity is rampant, real interest rates are significantly down, or even turn negative. Gold has stepped out of the 10-year bull market, and the short-term liquidity crisis is the main factor leading to the temporary decline in gold prices at this stage.
From the perspective of the large cycle: 1) the United States has been hit by the Internet bubble and the financial crisis, the economy has continued to decline, monetary policy has been ultra-loose hedging, and real interest rates have been falling.
2) inflation levelIt is not a major influencing factor at this stage, except for inflation expectations caused by the temporary rise in oil prices due to the war in Iraq in 2004, there is no trend inflation.
3) Dollar IndexAffected by the fundamentals of the US economy, there is an overall downward trend at this stage.
4) risk eventsIt has a trend impact on the United States and even the global economy, which plays an important role in the rise of gold prices.
5) the investment demand for gold and the demand for gold purchased by the central bank also increased.To form a long-term support for the price of gold.From a small cycle point of view, the price of gold rose the most in the third bull market, reaching 211.5%.Compared with the previous two bull market phases, it is mainly affected by ultra-loose liquidity, a rapid and sharp decline in real interest rates, a sharp increase in demand for risk aversion and demand for official long-term reserves.
2.4The second round of golden bear market (2012-2018)
The second round of gold bear market began in September 2011, when the price of gold fell from US $1895.0 / oz to US $1049.4 / oz in 2015. Since then, the gold price maintained a box shock pattern of US $1000 / oz-US $1400 / oz, with a total decline of 44.6 per cent.At this stage, with the recovery of the US economy and the shift in Fed policy, overall low inflation and a rebound in real interest rates. In addition, the economic downturn in Japan and Europe contrasts with relatively strong US growth, and gold prices fall rapidly and enter a bear market range.
Phased dominant factors:
(1) bear market stage: 2011-2015, down 44.6%
During this period, the price of gold fell from $1895.0 / oz to $1049.4 / oz, a drop of 44.6 per cent.From the perspective of the leading factors, the first is the tightening of US monetary policy, the consolidation of commodity prices and the decline in inflation expectations.As the economy improved, the United States began to withdraw from QE2 in 2011, and in October 2014, the Federal Reserve ended QE3 and returned to the era of monetary policy normalization. Under the influence of the shift in monetary policy, the global commodity consolidation was high. From 2013 to 2015, the CRB spot index fell from 491.4 to 373.7.
Second, the US economy has recovered, the economies of Europe and Japan remain in the doldrums, and the US economic growth is relatively stronger.
1) rise in real interest ratesAfter years of loose policies, the US economy has gradually recovered, real economic returns have risen and asset prices have risen. Between 2013 and 2015, the S & P 500 index rose from 1462 to a peak of 2124, and the attractiveness of gold as an investment product declined.
2) as the economy continues to recover, the US dollar strengthens.The dollar index accelerated, rising 23% from July 2014 to March 2015.
(2) shock stage: 2016-2018, the amplitude is about 14%.
During this period, gold prices fluctuated between $1049.4 / oz and $1366.25 / oz, with a volatility of about 14%.
From the perspective of the leading factors, negative interest rates in Japan and Europe caused a short-term bull market, and the slowdown in global growth led to long-term shocks in gold prices.
1) Gold prices rise under negative interest rates in Japan and EuropeAfter 2015, the euro zone and Japan successively entered an era of negative interest rates. The Federal Reserve said it was cautious to raise interest rates because of concerns about the global economy, and gold prices bottomed out from January 2016 to September 2016.
2) with the weakening of global growth momentum, real interest rates fell to position shocks in 2014, and gold prices fluctuated in the box range.
(3) Summary
The trend of gold at this stage is mainly based on the fundamentals of the US economy and the recovery of the world economy. In addition, the impact of some risk events led to the short-term strength of gold.
From the perspective of the large cycle: 1) due to the divergence in the trend of economic growth in the United States and Japan and Europe, the US economy is relatively strong, and gold has entered a long-term downward trend; 2) the level of inflationThere is no obvious trend at this stage. From October 2014 to December 2015, the Federal Reserve gradually withdrew from quantitative easing and turned to the normalization of monetary policy. Inflation expectations fell sharply and gold prices declined somewhat.
3) Dollar IndexThe US economy outperformed the world, US assets were favored, and the dollar index rose significantly.；
4) some risk events boost the gold price in the short term to some extent.In 2014, the right-wing forces won the European Parliament election, and major events such as the Brexit referendum in June 2016 brought gold prices up in a short period of time.
From the perspective of the small cycle, there is a long shock period in this stage, and the main factor affecting the long-term trend of gold price is the weakening of global growth momentum.Long-term negative interest rates in Japan and Europe weaken the attractiveness of some of their assetsShort-term risk events occur frequentlySince 2016, the repeated Brexit process, the rise of trade protectionism in the United States and the anti-globalization trend have led to obvious fluctuations in the price of gold.
2.5 the level of factors that affect the fluctuation of gold price
By reviewing the historical trend of gold, we construct a research framework to analyze the long-term and short-term gold price according to the importance and long-term and short-term indicators on the basis of the seven factors that affect the gold price.
(I) long-term indicators: determinants of large cycles
1. The US economy and real interest rates are the decisive factors for gold to enter the bull-bear cycle.
The relative strength of the American economy is accompanied by the change of real interest rate, which affects the price of gold through the financial and monetary attributes of gold. Behind the dollar index, inflation, real interest rate and risk index are essentially changes in the US economy and real interest rates. Macroscopically, first of all, there is a trend change in economic fundamentals and real interest rates, which in turn affects the long-term trend of gold prices. The stagflation of the US economy in the 1970s and the flood of liquidity in the US after the Internet bubble at the beginning of the 20th century all corresponded to the gold bull market, while the information technology revolution in the 1980s and the strength of the US economy relative to the global economy after 2013 corresponded to the gold bear market.
two。 Demand for official gold reserves is a long-term support for gold prices.
Gold is recognized as a hard currency in the world, mainly as a reserve for international payment. because gold reserves are highly related to the solvency of foreign debt and the credibility of currencies, gold has always played an important role in the reserve management of central banks. With the slowdown of US economic growth and the decline of dollar hegemony, the demand for gold from developing countries and emerging economies supports the long-term gold price. World gold reserves have entered the upward range since 2009 to support gold prices, and the continued rise in official reserves will support gold prices in the future.
(2) short-term indicators: it may lead to reverse small cycles under large cycles.
1. Focus on the impact of short-term events on the dollar index, inflation and inflation expectationsMajor short-term events hit gold prices by affecting the dollar index, inflation and changes in inflation expectations.
1) short-term events affect the relative strength of the US economy, thus affecting the trend of the dollar indexIn history, such as the Latin American debt crisis and the European debt crisis, the dollar index has been relatively strong.
2) short-term events affect the relative level of inflation or expectations lead to changes in real interest rates, which in turn have an impact on gold prices.By affecting the market's view of the future economic outlook, short-term events have raised inflation expectations, and nominal interest rates have fallen faster than inflation, leading to a decline in real interest rates to boost the trend of gold, such as the two oil crises in the 1970s and the war in Iraq, which led to rising oil prices and rising inflation.Due to the sudden and unsustainable occurrence of most risk events, most of the shocks are short-term, and as the impact of the events is gradually digested, gold prices return to the original trend.
two。 The impact of risk events on gold prices is related to the impact of events on the US economy and the international pattern.Affecting the international political and economic situation, the risk events of US economic growth will affect the short-term trend of gold prices.Historically, gold's response to regional military conflicts has been lower than that to international political and economic patterns and US economic changes, such as the Latin American debt crisis, the Gulf War, the Iraq War and the Asian financial crisis. Gold prices have not been boosted by crises or wars, but have even weakened as a result of increased market confidence in the United States.
On the other hand, the Internet bubble superimposed the "911 incident" and the subprime mortgage crisis had a severe impact on the US economy, and the price of gold rose; with the frequent occurrence of global risk events in recent years, the world political and economic pattern has changed, and the price of gold fluctuates frequently.Therefore, the embodiment of the demand for short-term risk aversion needs to pay attention to: first, whether the United States is at the core of the crisis; second, whether it has changed market expectations of real interest rates in the United States, or confidence in the United States; and third, whether the world economic structure may fall into turmoil.
3. The short-term liquidity crisis will lead to the short-term concentrated selling of gold, causing the gold price to fall rapidly.During the financial crisis, the market risk appetite declined rapidly, the redemption pressure of financial products increased, the short-term liquidity of the market shrank sharply, causing a liquidity crisis, the risk aversion of gold gave way to liquidity demand, and the sell-off of gold led to a fall in the price of gold. for example, during the subprime mortgage crisis and the US stock liquidity crisis in early 2020, the price of gold briefly plummeted.
3 the prospect of gold price
The price of gold has continued to rise since 2018, rising from a low of $1178.4 an ounce to more than $1900 an ounce, an increase of more than 60 per cent.Looking to the future, in the short termFirst, the current gold price is already in a high range, and second, as the COVID-19 vaccine gradually approaches, the US economy recovers, or it will support the recovery of the dollar index, and gold prices may undergo some adjustment in the short term.In the long runThere is continued downward pressure on the US and the global economy, the tone of monetary policy easing in various countries remains unchanged, long-term real interest rates are downward, global geo-and financial risks are frequent, and under the continuing trend of central bank demand for gold.We think gold still has support in this big cycle.
Long-term gold price determination framework:
1) the fundamentals of the global economy and the US economy are not optimistic.In 2019, the global economy fell periodically, the growth rate of the United States, Europe and Japan declined, PMI continued to be in the downward channel, the comprehensive leading index of OECD fell to the lowest point since the financial crisis, and the possibility of economic recession increased. Judging from the situation in the United States, the current US economy is at the end of the recovery from the financial crisis.The momentum of economic growth has weakened, superimposed by the impact of the COVID-19 epidemic on the economy, and the United States has taken the lead in resuming work and production, resulting in repeated epidemics and dragging down the momentum of economic recovery in the future. at the same time, the uncertainty of trade friction between China and the United States is still great. Trade protectionism also puts pressure on US economic growth, and it is more likely that the US economy will enter a
2) Central banks start ultra-loose monetary policy, and it is difficult to change the trend of ultra-low global interest rates.Since the revolution of information technology, the momentum of global economic growth has gradually declined. with the frequent economic and financial crises, the macro-control efforts of various countries have been increasing, and the policy space has narrowed, but the stimulus effect has gradually declined.
In the United States, for example, the intermediate target of the Fed's monetary policy shifted from money supply to interest rate regulation in the 1990s, cutting interest rates for 40 consecutive months in the savings and loan crisis by as much as 6.56 percentage points. In 2000, under the continuous blow of the dotcom bubble and 9 / 11, the United States cut interest rates for 30 months, by 5%, and maintained it until 2004, creating a real estate bubble. During the subprime crisis in 2008, the Fed slashed its benchmark federal interest rate from 4.75% to 0.25%. When interest rate cuts alone could not revive the economy, it launched three rounds of QE purchases of treasury bonds and MBS long-term assets.
In response to the COVID-19 outbreak, central banks around the world have once again launched ultra-loose monetary policies, including interest rate cuts, expansion or introduction of quantitative easing, and the trend of ultra-low global interest rates is difficult to change, forming a strong support for gold prices.The current interest rates in the United States have been cut to the lowest level during the financial crisis, while unlimited QE has been launched, the Central Bank of Japan and Europe has further cut the level of negative interest rates, the scale of negative interest rate bonds has been expanding, and it is difficult to change the global trend of ultra-low interest rates. The extremely loose monetary policy weakens the value of credit money, depresses the level of real interest rates, and the value of gold as a physical currency and financial investment continues to rise.
3) the trend of anti-globalization begins to appear, and geopolitical risks occur frequently.
During the economic downturn, under the stock game thinking, all parties try to transfer their own social contradictions to maximize their own interests, breed trade protectionism and disrupt the process of economic integration and globalization.After taking office, Trump dragged China, Japan and Europe into trade disputes, dragging down the global economy. There have also been a series of anti-globalization events in Europe, such as the British referendum on "Brexit". In 2016, the European Commission proposed new means of trade protection in its legislative initiative to crack down on dumping in specific industries under specific circumstances.
The surge in populism, regional conflicts and geopolitical risks poses serious challenges to global economic development and strengthens the safe-haven nature of gold.According to Dario's analysis, global populism is now approaching an all-time high. The great national unrest occurred in the United States due to the black Freud incident in 2020, which is an unprecedented division since the Civil War. In its latest report, the International crisis Group listed the Taiwan Strait as an area of "significant deterioration of the political and security situation." In addition, a series of risk events such as the continuous outbreak of protests in South America, the border conflict between China and India, and the situation in the Middle East have strengthened the safe haven nature of gold and supported the rise in gold prices.
4) the demand for long-term gold reserves of the central bank increases.The credit status of the US dollar has been affected by the long-term overissuance of the US currency. Since 2009, central banks around the world have shifted from net selling of gold to net buying of gold, and net purchases of gold are likely to maintain a strong growth trend in the future.At present, with lower returns and higher risks for central banks to hold US dollar foreign exchange reserves, countries begin to strategically increase their holdings of gold. Compared with developed countries, the proportion of gold reserves in emerging market countries represented by China, India, Mexico, Russia and Turkey is still significantly low. Emerging market countries have taken increasing the proportion of gold reserves as a major direction of international reserve diversification.
Global central bank purchases reached about 650 tons in 2018 and 2019, the highest level since the financial crisis, and the continued gold purchases by emerging market central banks may be a long-term gold price support in the future.
