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Gold Price Is Approaching the $2,000 Mark, One Step Away From the Historical High

The international gold price is approaching the $2,000 mark, within easy reach of the historical high two years ago. Safe-haven assets such as precious metals rallied sharply last week amid heightened risk aversion. Among them, New York gold futures rose by about 5.7% weekly, the largest weekly gain since April 2020; silver futures prices rose by 10.41% weekly.

With Silicon Valley Bank, Signature Bank, Credit Suisse, and other European and American banks falling into crisis one after another, the Fed’s interest rate hike expectations have been significantly reversed, and the credit of the US dollar is facing a test. There is still huge room for central banks to purchase gold backed by natural credit.

Analysts believe the world is in a stagflation-like cycle, and gold prices face a long-term bull market.

Safe-haven Assets Soared

Safe-haven assets such as precious metals rose sharply amid the Fed's massive bailout of the U.S. banking sector.

According to data, last Friday, the price of gold futures for April delivery on the New York Mercantile Exchange (COMEX) gold futures market rose by US$70.7, or 3.68%, to close at US$1,993.7 an ounce, 2,089 meters away from the all-time high in August 2020. USD, just one step away.

On the New York Mercantile Exchange silver futures market, the price of silver futures for May delivery was quoted at US$22.75 per ounce, the highest level since February 3, with an intraday increase of 4.88% and a weekly price increase of 10.41%.

Domestic gold futures prices also rose simultaneously. Last Friday, the main domestic gold futures contract 2306 closed at 443.12 yuan per gram, less than 10 yuan away from the historical high of 454.08 yuan per gram in August 2020, and it rose by nearly 6% in a single week.

In terms of silver prices, the main domestic silver futures contract 2306 closed at 5174 yuan per kilogram, up 3.05%. Driven by the rising price of gold, since March, the investment enthusiasm of market funds in the gold field has increased significantly, and gold concept stocks have been active.

Among them, Sichuan Gold rose 61.09% in a single week, and the largest cumulative increase in half a month was over 200%; Zhongrun Resources gained four consecutive boards, rising 47.44% in a single week. At the same time, the share of gold ETF funds rose, and fund products with heavy positions in gold stocks also performed impressively.

Central Banks Buy Gold Aggressively

Historically, the U.S. dollar index and gold prices have usually shown a negative correlation, but when risk aversion heats up, the two tend to move in the same direction. Recently, some banks in the United States and Europe have fallen into crises one after another. The rise in risk aversion has caused investors to flock to precious metal assets, and the credit of the US dollar is facing a test. There is still huge room for central banks to purchase gold backed by natural credit.

According to the World Gold Council's "World Gold Demand Trends" report, global central banks will add a net increase of 1,136 tons of gold in 2022, a substantial increase of 152.31% year-on-year, setting a record high. It is not only the 13th consecutive year of the net increase in holdings but also a historical record since data became available after 1950. Prior to 2021, the number of global central bank purchases increased by 77% year-on-year.

The latest adjusted data from the World Gold Council this year shows that the scale of central bank buying will further increase in 2023. The data on global central banks' net purchases of gold in January was revised from 31 tons to 77 tons, showing that the enthusiasm for buying gold in countries around the world remains high against the background of high geopolitical uncertainty. The final January figure was up 192% MoM from December last year.

According to the People's Bank of China data, at the end of February this year, China's official reserve assets held a total of 65.92 million ounces of gold, equivalent to about 2,050 tons, an increase of 1.23%, and purchased about 25 tons of gold. It has increased its gold holdings for 4 consecutive months.

In November last year, the history of no increase in gold holdings in the past three years was broken. Gold reserves increased by 32 tons of gold. In December last year, gold reserves increased by 30 tons. In January this year, gold reserves increased by about 15 tons.

At a time when central banks are buying aggressively, the number of precious metal inventories on exchanges has declined significantly. According to statistics from Minsheng Securities, since February 2022, the gold and silver stocks on the New York Mercantile Exchange (COMEX) have dropped by 32% and 17%, respectively.

Gold Prices Will Face a Long-term Bull Market

Wang Jiechao, a China Securities Investment Securities researcher, believes that the Fed has fallen into a dilemma of reducing inflation and preventing risks. The space for the United States to achieve a "soft landing" of the economy is getting narrower and narrower. It is nothing more than the timing and degree of recession.

Wang Jiechao said that once the interest rate cut starts, the potential energy of the high real interest rate will turn into the upward momentum of the gold price. As the price of gold rose, the gold sector and related leading targets significantly outperformed the CSI 300 and other market indexes. It is expected that with the Fed's interest rate hike slowing down, the gold price center is expected to rise gradually. However, in the short term, attention should be paid to the fact that if the liquidity risk spreads significantly, the price of gold may follow the short-term decline of other asset prices.

The research report of Minsheng Securities believes that the world is in a stagflation-like cycle, and gold prices will usher in a long-term bull market. The current global economy is in a historical level of currency oversupply cycle, and the proliferation of currency credit will form a long-term transmission to inflation. With the marginal improvement of demand, inflation may exceed expectations, forming stagflation. Historically, during the stagflation cycle, the price of gold rose significantly.

CCB Fund stated that the European and American economies are likely to go into recession in the future. The path for the Fed to end interest rate hikes within this year and then switch to interest rate cuts is clear. The real interest rate in the United States will enter a downward cycle. There is uncertainty in the tempo of time.

In addition, potential risk factors such as overseas financial systems and geopolitics have also boosted the safe-haven demand for gold, supporting gold prices. In the context of the continuous overdrawing of US dollar credit, central banks have also favored gold as a reserve currency.


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