Caijing News Agency October 28th (Editor Huang Junzhi) Since the beginning of this year, the price of gold has been "soaring all the way", with a cumulative increase of about 33% so far this year, exceeding the 23% increase of the S&P 500 index. It is worth mentioning that last week, the price of gold hit a historical high of $2,772 per ounce, with 6 out of the past 7 weeks showing an increase.

In addition, data from YCharts shows that since the start of the bull market in US stocks in October 2022, the increase in the price of gold has exceeded that of the stock market, with an ROI of 67%, while the S&P 500 index has an ROI of about 63%.

Such high returns have made gold one of the most popular investments globally. According to ETF.com's data, the largest gold ETF, SPDR Gold Shares, manages $78 billion in assets, with inflows of about $5 billion over the past six months.

Physical gold is also thriving. Gold bars listed on Costco's website have been selling out as soon as they are listed. Wells Fargo estimates that the value of gold bars and silver coins sold to its members by Costco each month can reach up to $0.2 billion.

Some analysts believe that this is a perfect storm for gold, with prospects indicating further increases in the future.

Global central bank demand

In recent years, central banks around the world have been frantically buying gold. According to data from the World Gold Council, in the first half of this year, central banks globally purchased a record 483 tons of gold. Among them, the central banks of Turkey, India, and China are the largest buyers.

Part of the reason for the surge in demand is that some countries want to diversify their reserves and reduce their dependence on the dollar.

Goldman Sachs stated in a report last month: "We believe that since mid-2022, due to concerns about US financial sanctions and US sovereign debt, the size of central bank purchases has doubled, this is structural and will continue."

Since the outbreak of the Russia-Ukraine conflict in 2022, this trend has been evident, when the United States attempted to impose maximum economic losses on Russia through sanctions. However, it is relatively difficult to impose sanctions on a country that is not so dependent on the dollar, and one way to reduce dependence on the dollar is to buy gold.

Renowned economist and Chief Economic Adviser at Allianz, Mohamed El-Erian, has expressed that the United States should closely monitor this dynamic. He recently pointed out that the current record high gold prices reflect that global financial institutions are intentionally reducing their investments in the dollar to achieve asset diversification.

El-Erian discusses the factors behind the rise in gold prices, attributing this long-term trend to two fundamental driving factors. One is the slow diversification of reserves beyond the US dollar by global central banks, and the other is the gradual move of payment systems towards diversification beyond the US dollar.

The former is reflected in the continued gold purchases by foreign central banks, driving the strength of gold. As for the latter, it mainly reflects Russia's ability to maintain trade relations and development, even though its major banks are excluded from the global financial messaging service Swift.

Russia has the ability to guide its de-dollarization economy out of crisis, which may give other countries confidence to reduce their dependence on the dollar, ultimately benefiting gold.

"The current issue is not only the weakening of the dollar's dominant position, but also the gradual change in the operation of the global system. As it becomes increasingly ingrained, this could severely divide the global system, eroding the international influence of the dollar and US financial system," El-Erian said.

Geopolitical tensions.

Gold is considered a safe-haven asset because it has long been a stable store of value. Therefore, when geopolitical tensions escalate, investors tend to flock to gold, and currently, there are plenty of worrying reasons.

More importantly, the soaring U.S. debt means another historical safe-haven asset - U.S. Treasuries may no longer be as secure.

Wells Fargo & Co this month stated in a report: "Gold appears to be the last 'safe-haven' asset, prompting traders including central banks from various countries to increase positions."

Bank of America's commodity strategist Michael Widmer said, "The price of gold looks better now than ever before. I think we are approaching $3000."

Trump trade

As the former president's odds of winning the election rise, Trump trades have recently heated up, with gold being a major beneficiary.

This is because it is expected that a Trump presidency would be accompanied by soaring government deficits and debt, further fueling concerns about inflation rebound and the sustainability of the U.S. dollar.

"If you are concerned about fiscal, financial repression, and attacks on the independence of the Federal Reserve, gold will be an attractive asset," said Davix Oxley, economist at Capital Economics.

Steve Sosnick, Chief Strategist at Interactive Brokers, stated that even if Trump does not win the election, the deficit could increase, laying the foundation for further increase in the gold price.

Interest rates

Data from the World Gold Council shows that historically, declining interest rates favor the price of gold. In the six months after the first rate cut by the Federal Reserve, the gold price rose by 10%. Due to the Federal Reserve's expected multiple rate cuts next year, lower rates should be a driver for the gold price.

In addition to the Federal Reserve, investors are also paying attention to the global interest rate trends. With central banks around the world seemingly ready to ease monetary policies, global interest rates are pointing towards a lower direction.

In the past two weeks, the Bank of Canada cut rates by 50 basis points, and the European Central Bank (ECB) also reduced rates by 25 basis points. In addition, economists expect that the Bank of England's future rate cuts will exceed market expectations.