Gold, like commodities, is not a friend of time. The investment concept of "being a friend of time" is aimed at interest-bearing assets, while assets or investment instruments that do not bear interest or even have time value are "enemies of time". Investors who trade commodities, gold and other assets are not friends with time, but are conducting price or trend research.
In theory, the trend of gold is the result of a race between nominal interest rates and inflation. Gold is a non-interest-bearing asset priced by monetary attributes. Under the dollar denomination system, the international gold price is driven by the US real interest rate, but the negative correlation with the international gold price is not the 10-year TIPS yield, but the year-on-year difference between the 10-year Treasury yield and the US CPI. In theory, the direction of gold prices is the result of a year-on-year race between 10-year Treasury yields and US CPI. But this conventional wisdom has been subverted by negative interest rates since 2016.
The rise of negative interest rates has made nominal interest rates the main driver of gold and turned gold into an "inflation-averse asset". After the Bank of Japan announced the implementation of negative interest rates in early 2016, the size of global negative interest rate debt increased sharply. The 2020 outbreak further pushed up the size of global debt with negative interest rates. In the meantime, non-interest-bearing gold has "allocation value". On the other hand, there is a seesaw relationship between inflation and the scale of negative interest rate debt. The rise of negative interest rate debt makes gold temporarily change from anti-inflation asset to inflation-averse asset.
In the coming year, bullish gold has a higher winning rate. 1) the inflection point of structural high inflation after the epidemic is approaching, and the killing effect of this factor on negative interest rate debt will be weaker. 2) the US economy may slow down on Q4, and the risk of recession next year is extremely high. If the conflict between Russia and Ukraine causes a supply chain crisis, the United States and the world will usher in an economic recession even earlier. In the coming year, the profitability of US stocks will gradually weaken, and institutional investors' demand for the allocation of safe assets such as gold will rise. 3) the expectations of the contraction table have been partially digested, and the probability of the 10-year Treasury yield rising above 2.5% is not high, and the high point is expected to be around the arrival of the contraction policy. With the arrival of the deflation policy, the approach of the mid-term elections and the appearance of downward pressure on the economy, 10-year US Treasury yields may enter a downward cycle from the end of Q2 to the beginning of Q3, and the size of global negative interest rate debt is expected to rebound again. Gold will also usher in a year or so of rebound. Standing at the moment, although it is still slightly on the left, the allocation value of gold is already very significant.
Risk hints: the US economy exceeded expectations; the global epidemic exceeded expectations; the Federal Reserve's monetary policy exceeded expectations; US and global inflation exceeded expectations; and the conflict between Russia and Ukraine exceeded expectations.
