Abstract
Precious metals have the triple attributes of currency, bond and commodity at the same time. This means that the precious metals bull market also corresponds to three paradigms-the standard currency crisis, the bond bull market and the commodity bull market.
Looking to the future, commodity cattle will be an important driving force for the future gold bull market, and the war between Russia and Ukraine has intensified the probability that inflation in Europe and the United States will continue to burst. At the same time, in view of the irreplaceable supply position of many Russian goods in the world, the sanctions against Russia by the United States and Europe may cause some countries to turn to other currency settlement methods, and the global monetary system may face reshaping, which will further push up gold.
Driven by commodity cattle, gold is just around the corner to refresh its all-time high. If the monetary system is reshaped, the room for gold to rise will be imaginative.
Since December 8, 2021, we have issued three reports in a row, respectively, from the current situation of overseas gold wealth markets, the role of gold in improving portfolio returns and hedging stock market risks, and the need to allocate gold in the context of the three superimposed periods of Combo recession / commodity super-rising cycle / US stock super bubble, a clear reminder that we must begin to pay attention to the value of gold allocation at present. After the release of the report, gold unilaterally rose 200 US dollars per ounce to more than 2000 US dollars per ounce. We think that gold is just around the corner to reach its all-time high, which is discussed in this article.
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I. three paradigms of gold bull market
In "Societe Generale Research Commodity report: three paradigms of Precious Metals Bull Market 20190823", we say that precious metals have the triple attributes of currency, bond and commodity at the same time. This means that the precious metals bull market also corresponds to three paradigms-the standard currency crisis, the bond bull market and the commodity bull market.
During the 100 years from 1871 to 1971, the world was successively in the gold and silver standard, the gold standard and the gold exchange system (Bretton Woods system). Gold played the role of world currency and was the most important reserve asset of central banks. For a hundred years, the nominal dollar price of gold was stable, roughly $20 / oz before 1934 and revalued at $35 / oz after 1934. This nominal price remained until the collapse of the Bretton Woods system. After the collapse of the Bretton Woods system in 1971, it entered the era of credit currency, in which the value of currencies was decoupled from gold, and the price of gold floated freely, but it was still an important reserve asset for central banks and a "safe haven (safeheaven)" in the minds of global investors.
We believe that precious metals have the triple attributes of super-sovereign currencies, super-sovereign zero-coupon bonds and commodity equivalents. This means that the bull market in precious metals also corresponds to three paradigms-the global standard currency crisis, the bond bull market and the commodity bull market. After the Great Depression in 1929 and the collapse of the Bretton Woods system in 1971, the bull market in precious metals was triggered by two typical currency crises, which originated directly from the revaluation of gold in the currency crisis. however, it is inseparable from the debt crisis (1929), the oil crisis (1973, 1980) and other factors. The bull market in precious metals in the first decade of this century was the result of the symbiosis of commodity and bond cattle.
II. Analysis of this round of gold bull market
After 2018, gold began a new bull market, with the price of London gold rising from a peak of $1190 / oz in September 2018 to $2074 / oz in August 2020. Since then, gold prices have experienced more than a year of shock adjustment, and the current round of gold bull market has set sail again.
2.1 2018 to 2020: bond Bull
The Federal Reserve began the cycle of raising interest rates at the end of 2015, the process of raising interest rates in 2016 was very slow, and US monetary policy continued to tighten after 2017. The Fed's rate-raising cycle stopped at the end of 2018 and its attitude changed significantly, which greatly reduced the opportunity cost of investing in precious metals and gold bottomed out. In 2019, economic data fell back, the Federal Reserve began to cut interest rates in August, and the bull market in precious metals accelerated. In 2020, after the novel coronavirus epidemic triggered a global recession, the Federal Reserve launched an unlimited number of QE, and cut interest rates by 175bps to zero in March. Gold started the fastest upward wave of the year. Bond bulls pushed up the first phase of the gold bull market from the end of 2018 to August 2020. After August 2020, the rapid decline in real yields on 10-year US Treasuries came to an end, as did the bull market in gold.
2.2 2022 start: commercial cattle
Since the beginning of 2022, the price of gold deviates from the real interest rate, but is highly synchronized with the oil price, and the characteristics of commodity cattle are highlighted. In the 1970s and 1980s, gold was also highly synchronized with oil prices against the backdrop of rapidly rising US bond yields. Our research shows that in a high inflation environment, the trend of gold is greatly affected by inflation, while the correlation with real interest rates decreases. Before Europe and the United States imposed sanctions on Russia, commodity prices entered a super-upward cycle in the second half of 2020 because of years of low investment. European and American sanctions against Russia have exacerbated the upward risk of commodity prices.
In terms of energy, about 70% of Russian crude oil exports cannot find buyers. Even if Russian crude oil can be transferred to non-Europe and the United States in a certain way in the future, it will aggravate the shortage of crude oil market because of the increase of transshipment time. At present, there is no way to make up for the supply gap caused by the shortage of Russian crude oil, and the market is repeating the mirror image of the crude oil market in April 2020, which is bound to end the turmoil at very extreme prices. At present, the natural gas supply of the No.1 Nord Stream pipeline in Russia is still stable, but European natural gas prices have risen by 300% due to the decline of the Yamal pipeline since September 2021 (September 2021 to the present). If the transmission of gas in the Beixi No.1 pipeline is also forced to stop in the future, it may be difficult to find the ceiling for European natural gas prices.
On the food front, Russia and Ukraine mainly grow winter wheat, both of which are in the growing season, but production is highly likely to be affected by the high cost of nitrogen fertilizer and natural gas, as well as dry weather. In addition, Russian and Ukrainian spring wheat and corn are sown in April and May, and if the war continues, it may greatly affect the annual crop yield of 2021 prime 2022. USDA has significantly lowered its forecast for Russian-Ukrainian wheat and corn production in 2021 and 2022, which has exacerbated the future rise in food prices (for details, see "Societe Generale Research Commodity report: Russia-Ukraine War and Commodity Carnival 20220307"). Against the backdrop of great upside risks in both energy and food prices, inflation in Europe and the United States will continue to burst, which will significantly support the price of gold.
2.3 reshaping the global monetary system?
The announcement by the United States to exclude some Russian banks from the SWIFT system could lead to a reshaping of the global monetary system. As an important commodity exporter in the world, Russia has trade relations with hundreds of countries around the world. And Russia accounts for a large proportion of global exports of many goods, which makes it difficult to fully find alternative suppliers. In this case, if many countries choose to abandon the US dollar as the trade settlement currency because they have to purchase Russian goods, it will be a major blow to the dollar system. At present, India and other countries have indicated that they are looking for a new way of settlement. After the Great Depression in 1929 and the collapse of the Bretton Woods system in 1971, precious metals prices were two typical currency crises that triggered a bull market in precious metals, and gold prices doubled in the following decade. In the context of commodity cattle, it is highly probable that the gold price will rise to an all-time high. If combined with the reshaping of the global monetary system, the future rise of gold prices is full of imagination.
