Gold plate-the world is not calm, buy some gold to suppress shock

The world is not calm, buy some gold to suppress shock

In August, the confrontation between China and the United States escalated in the scientific, technological and economic fields, the international epidemic of COVID-19 was repeated, the global economic growth rate declined, the international situation was partially tense, and the gold market fluctuated sharply.

The most eye-catching category of assets so far this year is gold. In terms of time, the international gold price exceeded 2000 US dollars per ounce for the first time in the evening of August 4, and rose to a record high of 2075.14 US dollars per ounce in intraday trading on August 7. Spot gold has risen more than 30 per cent so far this year.

On August 11, gold and silver, once soaring, suddenly plummeted, the biggest one-day drop in seven years. On August 12, the two major precious metals continued to fall, falling nearly $200 from their all-time highs.

Is this a sign that the safe haven asset has peaked, or is it a pullback before hitting a new high? Can we still invest in gold assets?

Gold: still a safe haven

Gold is different from other commodities, as a rare metal, it is a currency to preserve its value. gold fund is a derivative of gold investment, which is organized by fund sponsors and subscribed by investors. fund management companies are responsible for specific investment operations, specifically gold or gold derivatives as an investment media of a mutual fund.

At the same time, the gold ETF fund refers to the open-end fund in which most of the fund assets invest on the basis of gold, closely track the price of gold and are listed on the stock exchange. So gold fund and gold have the same specific properties: hedge and risk aversion.

As a safe haven, the investment circle jokingly called gold "likes bad news". Whenever there is a major crisis and risks in other markets greatly increase, assets of all parties will flock to this safe haven.

Resist inflation and maintain the value of the artifact

Everyone in the economy and society needs to face an inescapable phenomenon-inflation. Inflation will unwittingly engulf our income, and the purchasing power of seemingly stable cash is actually declining after a period of time.

And investment in gold will help people fend off inflation to some extent. For example, since gold futures began trading in 1975, the price of gold has risen by 600% in the more than 40 years, while the CPI, the household consumption index, has increased by 375%, and gold has outperformed inflation by a large margin.

Risk aversion attribute, resist risk

The so-called "safe haven asset" refers to the more stable assets whose prices will not fluctuate too much as the market changes. The common safe haven assets in the capital market are led by gold, including US dollars, US Treasuries and so on.

Why can gold "avoid risk"? Because TA has a uniqueFour advantages：

1. Born with its own monetary attribute, in history, countries around the world have used gold as a monetary reference.

two。 Non-renewable properties of rare metals. Scarcity is precious, and the future supply of gold will only continue to decrease.

3. An ideal asset to deal with inflation. Whenever global inflation and currency depreciation occur, gold is a sharp weapon for governments to deal with such crises.

4. Weak correlation with other asset classes. The value system of gold is relatively independent, in addition to the strong correlation with the US dollar, the relationship with most asset classes is relatively weak, therefore, adding gold to the portfolio can disperse the portfolio risk.

It is precisely because of these advantages that gold is highly irreplaceable in safe-haven assets, and it is also a "risk aversion tool" that has been tested for a long time.

Why is the current risk aversion attribute of gold "invalid"?

Since 2020, affected by trade frictions and epidemics, market risk aversion has risen, pushing gold prices to record highs. However, since then, global stock markets have fallen sharply, resulting in heavy losses for investors and a sharp tightening of liquidity, with a large number of investors having to sell gold to get cash flow.

However, experienced investors will find that, in fact, the "risk aversion" function of gold has not changed, but investors are short of funds in the short-term extreme market, resulting in large fluctuations in gold prices. In the short term, after the market sentiment gradually recovers, the risk aversion attribute of gold will be highlighted again. In the medium to long term, the recovery of the global economy and further easing by central banks will be strong support for gold prices.

Gold investment channel

After the Fed's unlimited quantitative easing, there are a lot of voices singing long gold, so what are the channels to invest in gold?

In terms of classification, investment channels include physical gold, paper gold, gold stocks, futures gold, spot gold, gold funds (divided into gold ETF, gold QDII funds, gold equity funds, etc.).

Driving factors and future risk of gold

It can be seen that the gold-themed stock base still serves as a "safe haven" in the negative market in the past six months, with net worth rising by about 50% in half a year, which can be said to be much more stable than the stock market with big ups and downs.

The factors that affect the price of gold mainly include the economic situation, inflation rate, geopolitics, monetary policy, stock market dynamics, as well as the strength of the central bank to buy gold.

As gold transactions in the international market are denominated in US dollars, the exchange rate of the US dollar has a direct impact on the price of gold. As the dollar depreciates, gold is relatively cheap for other currencies, and more money flows into the international market to push up the price of gold, and vice versa.

As a result, the monetary policy of the US Federal Reserve (central bank) has a significant impact on the price of gold in the international market. History has proved that there were major crises in the two or three years before gold prices hit record highs, and the Federal Reserve adopted quantitative easing to expand the money supply.

Gold investment returns are growing so steadily, what is the future risk after that?

JuanCarlos Artigas, director of investment research at the World Gold Council (WGC), said gold, like most asset classes, was being affected by "unprecedented global economic and financial market conditions" and that recent volatility in gold prices had been affected by large-scale unwinding of positions in all assets.

In other words, the liquidity crisis in the gold market is closely related to the epidemic. Due to the closure of many cities in the United States, the suspension of flights between the United States and Europe, and the suspension of production by some companies, physical gold cannot be transported to Europe by passenger aircraft, resulting in a shortage of physical gold in the gold market.

At the same time, the rapid rebound of gold prices has also led to a rapid increase in investment demand, which aggravates the imbalance between supply and demand and aggravates the shortage of physical gold supply. Liquidity problems mean that the transaction costs of traders soar, friction costs will also rise, which greatly increases the investment risk of investors.