Core point of view
Gold has the dual attributes of assets and commodities. Gold is widely used in finance, gold ornaments and other fields. From the perspective of asset attributes, the financial status of gold has been paid more and more attention by sovereign countries in recent years. From 2000 to 2020, China's gold reserves increased by 1553.3 tons, Turkey's gold reserves increased by 600.0 tons, and India's gold reserves increased by 318.9 tons. From the perspective of commodity attributes, the physical demand for gold mainly comes from two fields: gold jewelry and science and technology. Among them, the demand for gold jewelry accounts for a relatively large proportion. The demand for gold in 2021 reached 2220.9 tons, an increase of about 67.3 percent over the same period in 2020. China leads the world in gold demand, reaching 700.6 tons in 2021.
Real interest rates have been low for a long time, creating conditions for gold to rise. Since 2000, there has been a high correlation between COMEX gold and real interest rates, with a correlation coefficient of-0.91. The long-term average real interest rate on US Treasuries has been falling since October 2018. As of February 15, 2022, the real interest rate was 0.05%. Although it has rebounded from the previous period, the real interest rate is still at a low level. The persistently low operation of real interest rates has created sufficient conditions for the rise in the price of gold.
High inflation has helped push up the price of gold. In January 2022, CPI in the United States grew 7.5% from a year earlier, a 40-year high and is still on the upside. Inflation is mainly due to the previous loose monetary policy and fiscal policy. Under the policy stimulus, the supply of commodities falls short of demand, and prices continue to rise. As of February 14, 2022, WTI crude oil futures settled at $95.46 a barrel, up 58.7% from a year earlier. It is expected that the future economic recovery and policy easing will be difficult to end in the short term, the rise in commodities will boost inflation further, the anti-inflationary demand for gold will increase, and gold prices are expected to rise further.
External risks remain and uncertainty supports the price of gold. First, the spread of O'Micron is causing the global number of new infections to experience a fourth wave of outbreaks. As of February 24, 2022, the number of new cases confirmed by COVID-19 reached 1.4758 million worldwide on that day. In the context of the continued spread of the global epidemic, the uncertainty of the future economic situation still exists. Secondly, the issue of Ukraine has shown a trend of continuous escalation, the whole territory of Ukraine has entered a state of war, and the volatility of the global rights and interests market has gone up. As of February 24, 2022, the average VIX index in 2022 was 24.19 points, which was higher than 19.67 points in 2021. Overall market volatility is still relatively high, and uncertainty in the global economy may provide some support to gold prices.
Without fear of raising interest rates, gold is expected to be strong against the trend. Looking back, gold prices have risen in half of the six interest rate hikes in the US since 1980. It is expected that under the catalysis of three factors, the impact of this interest rate hike on gold prices may be limited: first, macroeconomic fragility, interest rate hikes to curb economic recovery. In the face of high inflation, the expectation of a rise in interest rates in the United States is strong. As of February 24, 2022, the yield on the 10-year Treasury note was 1.96%, up 0.44 pct from the beginning of the year. A rapid rise in interest rates will not be conducive to economic recovery. Second, inflation is high and the impact of expected interest rate hikes is limited. In the past six interest rate hikes, the year-on-year growth rate of US CPI has increased by 0.7 per cent, 4.0 per cent, 0.3 per cent, 1.1 per cent, 1.0 per cent and 1.7 per cent, respectively, so it is difficult for interest rate hikes to have an essential impact on inflation. Third, the expectation of raising interest rates is digested ahead of time, and the negative factors are gradually released. In the past six interest rate hikes, the average rise and fall of gold in one year, half a year and one month after the rate hike was 6.67%, 7.81% and 0.02%, respectively. As a result, negative factors such as interest rate hikes are released ahead of time, and gold is expected to remain strong after interest rates are raised.
Investment suggestion
Related companies may benefit from the continued prosperity of the gold plate, such as Zijin Mining, Chifeng Gold, Yintai Gold, Shandong Gold, China Gold and so on.
Risk hint
International geopolitical changes, abnormal fluctuations in commodity prices, macroeconomic policy changes.
