The new round of inflation expectations is strong and the long-term allocation value of gold is highlighted.

After London gold rose to $2078 an ounce since August last year, it entered a half-year-long adjustment, and the light of gold was dim for a time. With the evolution of the global economy from inflation expectations to overall inflation, gold investment opportunities are approaching and should be strategically allocated step by step.

A new round of inflation is expected to be strong.

The main factors affecting inflation include money supply, full employment and labor productivity, which together affect commodity and consumer prices. Judging from the current monetary easing maintained by the central bank, rising incomes and interest rates will push up the speed of money flows, while the slowdown of anti-globalization and technological revolution will lead to a lower-than-expected increase in commodity production and eventually lead to commodity inflation and overall inflation after full employment. Since the novel coronavirus epidemic last year, the world's extremely loose monetary policy has been superimposed by loose fiscal policy, increasing market expectations for future inflation. With the landing of the US 1.9 trillion fiscal plan, further assistance for residents and real enterprises in the future, consumption power will be further restored, and the transformation of inflation expectations into across-the-board inflation will accelerate. With reference to the previous round of inflation, monetary easing will lead to a rise in commodities, and then the overall rise in consumer prices will take about 24 months. Recently, it is clear that inflationary pressures from ultra-loose policies in the United States and Europe have begun to spread to some emerging market countries.

Us bond yields have limited upside.

From a logical point of view, inflation and interest rates are cause and effect each other, inflation expectations rise, leading to monetary policy tightening, and then interest rates up, while the flood of liquidity, money supply is greater than demand, will lead to the rise of inflation expectations. The latest minutes of the Fed meeting reaffirmed the persistence of the unlimited quantitative easing policy. Interest rates are not expected to rise until 2023. The recent upward trend in US bond yields is not over, but they are increasingly facing important pressure levels of 1.8% and 2.0%. According to the history of the Fed releasing water sharply and managing the yield curve after the previous round of financial crisis in 2008, once the yield curve is too steep, The Fed is bound to have further flattening of the yield curve, and real interest rates in the United States are still expected to remain below zero.

As the domestic equity market fluctuated sharply after the Spring Festival, funds poured into anti-inflationary assets such as gold, copper and crude oil. After the festival, most of the domestic gold ETF received a net application for purchase, with a net inflow of more than 4 billion yuan, reaching a scale of 25.1 billion yuan. Although overseas gold ETF capital outflow, but still maintained at a certain high level. In terms of physical demand, over the past two months, the gradual easing of concerns about the epidemic in many Asian countries has led to a boom in gold demand in Asian countries, and people in India and Malaysia have begun to hoard gold. The Chinese Lunar New year has also greatly stimulated the retail volume of gold, and retail investors in South Korea have also hoarded a lot of gold. Although the pace of gold purchases by global central banks has slowed, net purchases of gold still exceed those sold. For example, the central banks of Uzbekistan and Kazakhstan recently bought 8.1t and 2.8t of gold, respectively., CITI BANK forecasts that demand for gold from global central banks will rebound again in 2021.

Investment demand is recovering

Commodities are an effective tool against inflation. Because the increase in the issue of money leads to an increase in demand and a rise in commodity prices, further pushing up inflation. Crude oil, which is most sensitive to inflation, led the commodity rally, with a maximum increase of 200%, copper price up nearly 100%, gold price up only 8%, and the largest increase was only about 30%. Both the gold-copper ratio, the gold-oil ratio, and even the gold-silver ratio show that the gold price is at a periodic low relative to other commodity prices. Gold prices rose 180% in 2009 and 2011, especially after overall inflation in the United States at the beginning of 2011. Gold prices are once again out of a wave of rapid gains, with the biggest rise of 47%. Gold prices are expected to see a new upswing after inflation expectations shift to full inflation.