Ping An Securities released a research report saying that due to multiple factors, the price of gold has continued to rise rapidly since this year. As of April 10, the Comex Gold Index had exceeded 2,380 US dollars/ounce, breaking record highs several times. In the long run, the risk of US sovereign debt remains unresolved. The anti-globalization trend continues. Overseas geopolitical issues are fermenting, compounded by the 2024 global election. The global macroeconomic environment is still relatively complex. The US dollar credit system may face continuous weakening, and the global sovereign currency system may be undergoing a long-term reconstruction process. The anchor of gold is expected to be reshaped. During this period, as the diversification of global reserve assets and the demand for safety rises, gold's monetary attributes are expected to continue to rise.
The main views of Ping An Securities are as follows:
Has the macroeconomic relationship with gold broken?
Overall, before 2021, the most important pricing logic for gold prices was the actual interest rate framework, which corresponds to the financial attributes of gold. Since 2022, the gold price center has continued to rise while real interest rates have risen. The US and ECB have greatly expanded their tables after the epidemic, and the credit of sovereign currencies such as the US dollar has declined due to excessive liquidity. At the same time, geopolitical risks such as the Russian-Ukrainian conflict have increased. Central banks around the world have greatly increased gold reserves to improve the safety of reserve assets, and monetary attributes have become the main pricing logic for gold.
Gold and real interest rates: In the 2007-2021 period, in the context of low global interest rates, gold showed a significant negative relationship with real interest rates. After 2022, with the end of the era of low interest rates, the relationship between gold and real interest rates broke down. Overall, under low interest rates, the two show a strong negative correlation. Under high interest rates, the relationship between the two is not significant. In the past, the negative correlation pricing logic between the two is no longer applicable to the current high interest rate environment.
Gold and US dollar index: The gold price usually shows a negative relationship with the US dollar index. Since the second half of 2018, the relationship between the two has diverged.
What do you think of this round of gold prices breaking new highs over and over again?
Monetary attributes: US debt is high, fiscal deficits are worsening, bipartisan polarization has led to a decrease in the effectiveness of governance, weakening the credit of the US dollar, compounded by the frequent imposition of financial sanctions by the US, and the trend of decriminalization is prominent. Under this scenario, central banks around the world increase their gold holdings and reduce their holdings of US debt. At the same time, the US dollar credit may weaken for a long time, and the global monetary system may be undergoing a long-term reconstruction process. Gold is an underlying reserve, and central banks' allocation requirements are expected to continue to rise.
Safe-haven attributes: Recently, the risk of a geopolitical conflict has resurfaced, and Russia has declared a state of war. The direction of the war may be affected by European and American support for Ukraine. At the same time, the Middle East cease-fire negotiations have reached an impasse, and derivative risks have spread to Iran, and the safe-haven nature of gold continues to be prominent.
Commodity attributes: The central bank continues to buy gold, rising gold prices stimulate investment demand, and the growth in the scale of gold demand is expected to accelerate. Gold mine production and recycling scale have fluctuated less in recent years. The supply performance is relatively rigid compared to the demand side. As the scale of demand accelerates, the gold supply and demand pattern may tighten at an accelerated pace. Compared to other industrial metals, the supply and demand of gold has not changed much, and the pricing weight of commodity attributes is small. After the accelerated release of this round of incremental demand for gold, the supply and demand pattern is expected to be reshaped, and commodity attributes may be one of the core drivers of gold pricing.
What is the subsequent trend of gold prices?
In the medium term, gold prices rose significantly in the first quarter, and the US economy still showed some resilience in the first quarter. The March non-agricultural increase and CPI data both exceeded market expectations, and interest rate cuts were delayed over and over again. If the pace of interest rate cuts by the Federal Reserve exceeds expectations to a certain extent, it may cause gold prices to fluctuate.
In the long run, the risk of US sovereign debt remains unresolved. The anti-globalization trend continues. Overseas geopolitical issues are fermenting, compounded by the 2024 global election. The global macroeconomic environment is still relatively complex. The US dollar credit system may face continuous weakening, and the global sovereign currency system may be undergoing a long-term reconstruction process. The anchor of gold is expected to be reshaped. During this period, as the diversification of global reserve assets and the demand for security rises, gold's monetary attributes are expected to continue to rise.
Risk warning: 1) macroeconomic recovery fell short of expectations; 2) monetary policy tightened beyond expectations; 3) overseas market fluctuations increased; 4) the geographical situation escalated; 5) market risks increased.