Since October, the performance of gold has been impressive, with spot gold soaring from a low of 1,831.93 in October to 2,006.07, a 9.5% increase. It directly achieved the best October increase in 45 years. In terms of product structure, the operating income of 10-30 billion yuan products is 401/1,288/60 million yuan respectively.

Perhaps you want to know why gold's rise is unusually fierce and what is the logic behind it? Is the fluctuation in November a risk or an opportunity?

Macro indicators show that the Fed's interest rate cycle may have ended, and with the increasing call for interest rate cuts next year, is now the best time to invest in gold? This issue of Opportunity Express will tell you the answer.

First of all, why invest in gold?

From a historical perspective, gold has always been a rare commodity.

It has been used as a currency, as well as for jewelry or collectibles. As financial instruments continue to evolve, gold has become an alternative investment that is accepted by the masses.

However, regardless of the purpose of owning gold, it is considered due to its scarcity. Therefore, the fundamental purpose of investing in gold is actually to preserve wealth.

Let us take a look at what factors have the greatest impact on gold.

The main factors affecting the trend of gold

Inflation: Gold rises with inflation because rising prices increase the value of gold.

The US dollar: Since gold is priced in US dollars, when the US dollar appreciates, the price of gold will fall due to the unchanged value of gold itself, and vice versa.

Monetary policy: Gold performance is usually poor during periods of Fed rate hikes because gold is often an asset that resists inflation, and when rate hike suppresses inflation, gold values ​​are also negatively affected.

Hedging demand: Historically, gold has had little correlation with riskier assets such as stocks and bonds, and sometimes even exhibits negative correlation. Therefore, it is considered one of the best choices for hedging.

Commodity demand: Gold's inherent commodity value allows people to buy physical gold. According to statistics, about 49% of the world's gold is used for jewelry, which is also the largest single use of gold. Therefore, when demand is high, gold prices will naturally rise.

What are the related investment products of gold?

1. Physical gold

First, people may think of jewelry, gold bars and other physical gold, yes, this is also one of the simplest ways to invest in gold. In the past decade, small gold bars and coins accounted for two-thirds of annual gold investment demand, about one-quarter of global gold demand. But it is worth noting that physical gold may lack liquidity and investors need secure storage.

2. Gold futures

Gold futures give investors the right to purchase or sell gold at a specific price in the future, and is a standardized contract traded on a regulated exchange. Due to the participation of many professional investors, the gold futures market usually has high liquidity and efficiency. Investors can buy or sell gold futures flexibly, so gold futures are also commonly used by corporate clients for risk management purposes.

3. Gold ETF

Some investors like to hold stocks of companies specializing in gold mining and refining, and these gold mining stocks can also be purchased through exchange-traded funds (ETFs) and mutual funds. According to statistics, ETFs and other exchange-traded investment tools account for about one-third of gold investment demand. The price of gold ETF usually tracks the performance of the underlying spot price of gold and can be bought and sold on exchange like company stocks. Because the minimum investment amount is only the price of one share of ETF, this method is more convenient for small investors than directly owning gold bars. The annual average expense ratio of these funds is usually about 0.61%, much lower than the expenses and expenses of most mutual funds and other investments.

4. Gold IRA

Gold IRA is a specialized retirement account that allows holding physical gold and precious metals, unlike traditional IRAs. Investing in Gold IRA can not only reduce annual taxable income, but investors can also manage the investment portfolio included in the IRA independently. In addition, because gold does not have the liquidity of other assets, physical gold may be very suitable for long-term investment, consistent with the investment philosophy of IRA.

Is the gold correction an opportunity or a risk?

Why did gold rise in October?

The recent market environment has clearly given gold an opportunity to demonstrate its hedging properties: increased uncertainty in the global economic situation and growing concerns about global economic growth. At the same time, the resurgence of some regional geopolitical conflicts has caused a surge in investor hedging demand. In October, the VIX index, which represents market volatility, soared to 21.71, and the three major US stock indexes plummeted, with market statistics showing the worst performance since the US stock market in October in five years.

At this time, as a hedge asset, gold naturally attracts the attention of global investors, because when the market is volatile, gold often plays a stabilizing role.

In October, the international gold price not only rebounded continuously from its low point, but also successfully broke through the key point of 2,000 US dollars per ounce, exceeding other commodities such as crude oil and copper, and also surpassing the performance of global stock markets.

From the perspective of technical indicators, gold rose exponentially in October, easily breaking through the 200 SMA (simple moving average), but it seems to have reversed after touching the 2010 US dollar resistance level, and the trend of gold has fluctuated significantly since November.

Technical indicators that investors can refer to

According to DailyFX's analysis, technical indicators can be divided into three categories:

Support and resistance levels: As for resistance levels, there seems to be huge selling pressure around the 2,000 US dollar mark for gold price; as for support levels, the 200 SMA is widely used as an indicator for long-term trends in the market.

Different moving averages: At the same time, DailyFX analysts believe that moving averages seem to be forming a golden cross, as the 50-day moving average crosses the 100-day moving average and the 200-day moving average, indicating a sign of a bullish trend. However, there are many mixed signals here—much of which is due to the uncertainty of macro and geopolitical situations, increasing overall uncertainty.

Implied volatility: The 30-day implied gold volatility has dropped significantly, approaching the level at which it rose again after the turmoil in the regional banking industry in May. Lower volatility indicates that gold prices may need another catalyst to re-hit recent highs.

Source: Futubull | As of November 13, 2023, Gold Price (XAU/USD) | Please note that any illustrations mentioned in this content are for educational purposes only. They should not be used as the sole basis for making investment decisions or recommending any investment or investment strategy.

As mentioned earlier, gold is influenced by many factors, and perhaps the most influential factor in the short term is monetary policy and geopolitical conflicts. From the perspective of conflicts, the recent developments in the situation can be said to have reduced the correlation of continuing the previous rise in gold prices, because we can see that as of November 10, gold prices have instead fallen since entering November. DailyFX analysts believe that gold may be becoming less sensitive to potential geopolitical threats.

Therefore, we may attribute the decline in gold prices to another factor—monetary policy. In early November, the Fed showed a hawkish position—opening the door to further rate hikes in the future, and the gold prices fell after the market received signals of possible rate hikes.

Analyst views on gold prices

In the short term, DailyFX analysts believe that gold may continue to be supported because holding metals is still attractive and the weak US dollar also helps support gold prices.

In the long term, according to analysts from Zacks, with the expected shift from hawkish to dovish policy by the Fed and the possible decline in real yields, the price of gold in 2024 may rise. Similarly, JPMorgan also sees opportunities in gold - the price is expected to surpass $2,000 per ounce by the end of the year and reach a new high in 2024. Greg Hiller, executive director of global commodity research at JPMorgan, said that the Fed may cut interest rates in the second quarter of next year, and the decline in US real yields will be an important driver for metals. Since interest rates often have an inverse relationship with gold prices, the price of gold is expected to break through $2,175 next year. Zacks analysts believe that the rebound in gold depends on the behavior of the Fed and the progress of geopolitical crises. If the Fed continues to hold steady, this will be good news for gold investments.

Overall, with the uncertain global economic outlook, gold investors should closely monitor economic and market events before making decisions.