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The epidemic gives rise to the demand for risk aversion and the value of gold allocation is highlighted.
Jul 1,2020 08:38CST
translation
Source:Futures daily
The content below was translated by Tencent automatically for reference.

SMM Network News: at present, the global epidemic has not been fully controlled and repeated, a strong economic recovery may be difficult to achieve in the short term. In this context, risk aversion has become an important theme of investment. Can gold continue to play its unique role of risk aversion and anti-inflation, further strengthen its value in the allocation of large categories of assets, and how can the gold market promote the development of the real economy and serve market participants? In the online live meeting of the 2020 Pujiang Financial Forum held on June 29th, senior experts and important representatives of the industry discussed the above topics in depth.

"under the influence of the epidemic, gold has become one of the best performing assets so far this year." Wang Lixin, managing director of the World Gold Council in China, said that under the heightened risk aversion, gold investment demand surged, global gold ETF was highly sought after, and total positions flowed sharply for six consecutive months. at the same time, gold maintained a low correlation with other assets this year, and its volatility was lower than that of most mainstream assets in the same period.

In his view, the huge inflows of global gold ETF are related to the current political and economic environment, such as pressure on the global economy, falling interest rates, substantial growth in the money supply, uncertainty in international relations, and riskier assets.

In the current economic environment, the strategic investment value of gold has been highlighted. 'The current economic outlook is uncertain and gold is an ideal risk diversification tool,'he said. As most central banks around the world cut interest rates, the opportunity cost of holding gold has fallen. In the period of systemic risk, gold is not only one of the sources of short-term income, but also provides a superior source of liquidity as an international market with depth and liquidity. Gold is a long-term source of income and does not just provide returns in a crisis or high inflation environment. It can be said that the value of gold is very stable relative to the mainstream legal tender in the world. In addition, gold can optimize the performance of the portfolio, and the higher the proportion of gold (the best between 2% and 10%), the higher the risk-adjusted return of the portfolio.

Zhao Fanghua, general manager of the Shanghai International Gold Trading Center, introduced the operation of the Shanghai Gold Exchange under the epidemic. In terms of transaction scale, trading declined slightly at the beginning of the epidemic and increased significantly in March, and the overall operation of the market was stable. From January to May, the total transaction volume of the Shanghai Gold Exchange reached 10.45 trillion yuan, including 28800 tons of gold, an increase of 22.88 percent over the same period last year, 1.2272 million tons of silver, an increase of 275.35 percent over the same period last year, and 41.63 tons of platinum, an increase of 178.23 percent over the same period last year.

From the perspective of price trend, gold prices showed an upward trend from January to May, and both spot and deferred gold prices reached historical highs in mid-May, with AU99.99 trading as high as 402.60 yuan / g, closing as high as 398.21 yuan / g; Au (tipped D), and closing as high as 398.07 yuan / gram. There are three main reasons: first, the market supply problem, there are many gold refineries in Switzerland shut down due to the epidemic; second, the actual flow problem, due to international air transport difficulties, the current market is temporarily fragmented, the United States and other places lack of physical supply, Switzerland and other places refined gold transport difficulties; third, the role of market risk aversion, affected by the epidemic, gold investment demand surges.

However, from the perspective of the price gap, she said that in previous years, based on the relationship between supply and demand, the price of domestic gold was usually higher than that outside China, but since the outbreak of the epidemic this year, the price of physical gold in China has continued to be lower than that outside China, and the range and duration of price differentials have reached an all-time high since the opening of the gold institute, increasing the challenge of exchange risk control.

According to Qiu Yi, deputy general manager of the Precious Metals Business Department of the Industrial and Commercial Bank of China, the international and domestic gold markets have shown different new characteristics under the epidemic. Black swan incidents in the international market have emerged one after another, and market sentiment fluctuates greatly. the domestic market has shown resilience and rationality.

Qiu Yi said that the fundamentals of China's gold market and the steady improvement of the gold industry have not changed, while commercial banks will continue to support the development of the gold industry and provide all-round services to market demand.

In addition, in response to the needs of residents' wealth allocation, she said she would continue to promote product innovation. We will continue to help more qualified investors enter the exchange market and enrich real gold entrusted management products, futures options and other financial derivatives investment instruments.

Zhao Fanghua also said that the Shanghai Gold Institute will speed up product research and development, enrich market participants and boost domestic gold demand. On the one hand, it is to improve the pricing mechanism of "Shanghai Gold" and "Shanghai Silver" and expand the scope of application; on the other hand, it starts with gold, silver, platinum, palladium and other varieties to form a multi-dimensional, multi-functional, diversified, multi-level, interoperable and regulatory innovative product matrix system. In addition, it will also fully support fund companies to enter the gold market and guide investors to buy gold ETF; linked to Shanghai Gold Exchange contracts to continue to carry out research on the path and policy plans for insurance funds to enter the gold market, and to cooperate with the promotion of insurance institutions to pilot to enter the gold market; continue to carry out research on the participation of overseas sovereign funds, high net worth clients and other market entities in China's gold market model.

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