Event
With the further escalation of the situation in Russia and Ukraine, the international gold price rose above 1940 US dollars, setting a new high since the beginning of 2021. For the recent sharp rise in gold prices, we have the following comments.
Comment
The expected effectiveness of the outbreak of war is closely related to the rise in the price of gold. At present, the question that the market has been concerned about and discussed is whether the war between Russia and Ukraine will bring about a sustained rise in the price of gold, that is, the possibility that the safe-haven premium of gold will continue to be magnified. Through the statistics of the impact of local wars on gold prices in recent years, it is found that the boosting effect of wars on gold prices is mainly related to the expected effectiveness of the market for the outbreak of war. As for the Russian-Ukrainian time, with Russia directly recognizing the independence of the Republic of Donetts and the Republic of Lugans, the possibility of a substantial outbreak of the conflict between Russia and Ukraine has greatly increased, and the risk aversion premium has begun to appear in the pricing of gold. The impact of the conflict between Russia and Ukraine on the follow-up of gold prices is closely related to whether there are more outbreaks of events than expected.
The expectation of raising interest rates is gradually digested, and the resistance to the rise of gold gradually disappears. From the currently released global inflation data, CPI increases in Europe and the US are the highest in 25 years and 31 years, respectively. The recent rise in crude oil prices also reflects that the current inflation level is further upward, with the price of NYMEX crude oil and WTI crude oil rising as high as $100.54 and $97.94 per barrel, respectively, the highest since 2014. As an anti-inflationary asset, gold has plenty of upward momentum in the current high level of inflation. From the observation of the current copper-gold ratio and oil-gold ratio, they are both at the high level in the past 14 years. The copper-gold ratio has averaged 4.2 over the past 10 years and is currently 5.5, reflecting that gold may be 30% undervalued compared to copper parity. On the other hand, the current price of US dollar gold is significantly lower than that under inflation parity, indicating that the inflation premium of gold is still in the fermentation stage. Current market expectations for future interest rate hikes are getting stronger, and gold prices are expected to remain strong during this round of interest rate hikes. On the one hand, as March approaches, gold prices remain strong, indicating that the negative effect of interest rate hikes on gold is weakening and market expectations are gradually digesting. On the other hand, the interest rate hike is expected to have a limited impact on gold prices. During the past six interest rate hikes, the year-on-year growth rate of US CPI has continued to rise, and it is difficult for interest rate hikes to have an essential impact on inflation.
There is a high probability that the gold price will continue to strengthen in the follow-up. Since the beginning of the year, due to the high inflation in the United States and the repricing of monetary policy, the risk aversion of gold has regained the favor of funds, and investment targets, including gold-related stocks, gold ETF and gold futures, have received capital inflows. In the short term, the Russian-Ukrainian problem is difficult to ease quickly, and the subsequent gold price is expected to continue to strengthen under the expectation of Fed interest rate hikes and geopolitical factors.
Risk hints: the epidemic situation fluctuated more than expected; war events exceeded expectations.
