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Is the record-breaking gold still a good choice for risk aversion?
Jul 9,2020 11:41CST
translation
Source:Futures daily
The content below was translated by Tencent automatically for reference.

SMM News: international spot gold rose strongly, breaking the $1800 / oz mark in intraday trading for the first time since November 2011.

Gold is known as the "ballast stone" of asset allocation. Since the beginning of this year, international gold prices have fluctuated upwards: in the first quarter, due to the outbreak of Xinguan pneumonia, liquidity risks appeared in the international financial market, gold prices rose first and then depressed, and once there was a sharp pullback; however, with the improvement in market sentiment, prices in the international gold market picked up again in the second quarter.

Amid the "rally", the return on gold assets exceeded 17 per cent in the first half of the year, making it outstanding among mainstream assets. So what is the main logic behind this gold rally?

Industry insiders believe that, on the one hand, in the context of the epidemic sweeping the world, the world economic recession, and increased geopolitical uncertainty, gold provides a "safe haven" for investors; on the other hand, the rising debt of the United States has triggered market concerns about the US dollar. coupled with the fact that many central banks keep interest rates low and the opportunity cost of holding gold is low, more investors choose to buy gold to preserve their wealth.

Xiao Lei, a senior investment analyst, believes that in addition to hedging and hedging functions, the rotation effect of large categories of assets also brought important support to the performance of gold prices in the first half of the year. In recent years, large categories of assets such as US stocks have repeatedly reached record highs, while gold valuations are relatively "depressed". Once the market starts to rotate, it will naturally attract investors to pour in.

The continued rise in the price of gold has ignited the enthusiasm of investors. According to the World Gold Council, the total inflow of global gold ETF reached an amazing 734 tons in the first six months of this year. That figure far exceeded even previous annual inflows, pushing total global gold ETF positions to an all-time high of 3621 tonnes.

Looking forward to the second half of the year, where will the price of gold go? Judging from the current situation, the uncertainty of international financial markets and geopolitics, low interest rates and other factors driving this round of gold price rise still exist.

Some market institutions predict that under the heavy pressure of the epidemic, the path of global economic recovery is not yet clear, and the continued stimulus policies launched by various countries are expected to continue to push up the prices of all kinds of risky assets, and the gold market will remain good in the medium term.

However, from the perspective of short-term investment strategy, due to the sharp rise in gold prices before, a certain degree of adjustment pressure has been accumulated, and once gold prices break through the previous historical peak, some investors may take profits and lock in profits.

With the recent strong rebound in global stock markets and the fact that gold prices have risen to recent highs, is it necessary and possible for investors to participate in the gold market?

Experts pointed out that the current logic of gold asset allocation is shifting from pure risk aversion to the need to hedge the portfolio of risky assets.

"the most important thing for investors is to have a sense of portfolio, rather than simply 'betting' on the price trend of a particular category of assets." Xiao Lei said that at present, China's economy continues to improve and the stock market is active, and investors can consider choosing the asset allocation combination of gold and the stock market.

He suggests that ordinary investors can consider buying funds no matter what kind of targets they invest in. In addition, when investing, we must pay attention to act according to our capacity and set aside enough funds for a rainy day.

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