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Economic Observer reporter Hu Qun Gold prices hit a new record high.

On August 17, the spot price of London gold was US$2,506.96 per ounce, up 2.06%; the COMEX gold price was US$2,546.2 per ounce, up 2.16%; the main gold price of the Shanghai Gold Exchange was 574.64 yuan per gram, up 1.33%.

Looking back at the trend of gold prices, the gold market has experienced a strong upward momentum since March this year. On March 6, the price of gold hit a record high, and then quickly broke through the important psychological barriers of $2,200, $2,300, and $2,400 in the following months. From mid-April to July, the price of gold consolidated in the range of $2,300-2,400, forming a relatively stable platform period. However, after entering the end of July, the price of gold accelerated again and broke through the key price of $2,500 in early August.

August 16,Bank of ChinaChief researcher Zong Liang said at the 2024 Hengyouhui Carnival that multiple factors have jointly pushed gold into a new round of rising cycle. Wealthy investors have boosted the surge in demand for gold, and their portfolios are now more diversified than before 2023. In the first half of 2024, gold was one of the best performing major asset classes in the world.

Zong Liang said that from the perspective of long-term asset price operation, gold prices will still have strong upward momentum in the future due to the combined effects of the three major factors of global central banks' continued "de-dollarization", rising global geopolitical uncertainties, and the Federal Reserve's monetary policy shift. Considering the Fed's downward adjustment of interest rate cut expectations and the current situation of gold prices rising, it is expected that gold prices will fluctuate more in the short term.

goldcycleNot yet finished

Gold is one of the best performing investment targets in recent years. Since 2020, the price of gold has been experiencing its third round of rising cycle since the collapse of the Bretton Woods system.

The "Macroeconomic Outlook and Asset Allocation Strategy Guide for the Second Half of 2024" (hereinafter referred to as the "Guide") released by Hengyouhui shows that from a long-term perspective, since the collapse of the Bretton Woods system, gold has experienced three cycles of significant increases.

The first round was from 1971 to 1980, when the London spot gold price rose from around $37/ounce in early 1971 to a high of $710/ounce in September 1980, an increase of more than 18 times. The second round of gold price rise was from 2002 to 2011. Driven by factors such as the Internet bubble, the global financial crisis, and geopolitical risks, the London spot gold price rose from around $278/ounce in early 2002 to $1,895/ounce in September 2011, a total increase of 5.8 times. Since 2020, the gold price is experiencing its third round of rising cycle since the collapse of the Bretton Woods system.

Source: "Macroeconomic Outlook and Asset Allocation Strategy Guidelines for the Second Half of 2024"

Zong Liang said that from a historical perspective, the duration of gold cycles is often long. The first two rounds have experienced a rise period of about 10 years. This round of gold price rise has lasted for 4 years since 2020 and is expected to be not yet complete. As the downward pressure on the US economy increases, the high interest rate effect appears with a lag, and the upward momentum of inflation weakens, the market generally expects that the Federal Reserve's monetary policy will shift to an easing cycle in 2024. The market "preempted" the Fed's expectations of a rate cut, pushing gold prices up ahead of schedule. Judging from the performance of the gold market before the Fed's rate cut in history, the gold market tends to perform better about 6 months before the rate cut.

Zong Liang said that from the perspective of the global political and economic landscape, geopolitical conflicts have been escalating in recent years. In 2024, the world will enter a "super election year", and the Russian-Ukrainian conflict and the Palestinian-Israeli conflict have repeatedly shown signs of escalation. Against this background, gold prices have risen rapidly, supported by market risk aversion, and speculation in the financial market has also intensified the increase in gold prices.

Zong Liang said that from the perspective of emerging factors, factors such as the central bank's increase in gold holdings and the increase in gold demand in the Chinese market have become important contributors to the current round of gold price increases exceeding market expectations. Data from the World Gold Council show that global central banks' net gold purchases in 2022 and 2023 will be 1,082 tons and 1,037 tons, respectively, the first and second highest on record. Central banks around the world continue to increase their gold reserves for reasons of seeking financial security and de-dollarization. At the same time, the demand for gold in the Chinese market has risen sharply, making it the world's largest consumer of gold jewelry. In the past two years, China's stock market has continued to fluctuate at a low level, coupled with the continuous decline in interest rates and the decline in the yield of wealth management products, which has highlighted the investment value of the gold market, and more and more consumers have turned their attention to buying gold. In addition to gold jewelry, the Chinese market's demand for gold bars and gold coins has also increased significantly, and the demand for goldETFThe investment enthusiasm has also increased significantly.

The Guidelines state that from the perspective of long-term asset prices, gold prices are expected to maintain strong upward momentum in the future due to the combined effects of the continued "de-dollarization" of global central banks, rising geopolitical uncertainties, and the shift in the Federal Reserve's monetary policy. In particular, during the transition period from the end of the US dollar interest rate hike cycle to the beginning of the interest rate cut cycle, the upward trend of gold may reappear, which may become an important factor driving the rise in gold prices in the second half of the year. However, even during the rising cycle, the fluctuation range of gold prices may be large. Considering the market's downward adjustment of expectations for the Federal Reserve's interest rate cuts and the current situation that gold prices may have exceeded their current levels, it is expected that the volatility of gold prices may intensify in the short term.

August 13,UBSThe Office of the Chief Investment Officer (CIO) of Wealth Management released an analysis report stating that the price of gold is expected to reach $2,700 per ounce by mid-2025. Previously, the agency has repeatedly expressed its continued optimism about the gold market and predicted that by the end of 2024, the price of gold may rise to $2,600 per ounce, and then further rise to $2,700 per ounce in June 2025.

CIO believes that gold is an effective safe-haven asset that can be used to hedge against geopolitical risks, inflation, and uncertainties caused by excessive fiscal deficits. In addition to recommending a moderate allocation of gold assets, CIO also recommends that investors diversify their portfolios by adding alternative investments with lower correlations, such as private equity and hedge fund investments. Such a strategy helps reduce overallInvestment Risksand increase potential earnings.

Prepare for rate cutsPrepare

The downward trend of interest rates has become one of the dominant trends in the global financial market in 2024. In addition to the United States, other countries have also begun a cycle of interest rate cuts. As global economic growth slows and inflationary pressures ease, many countriesCentral BankA more accommodative monetary policy stance has begun to be adopted.

Zong Liang believes that the Federal Reserve's monetary policy shift has ushered in a turning point in global liquidity. At present, both the Federal Reserve System of the United States and the European Central Bank have suspended measures to raise interest rates. Looking ahead, the Federal Reserve is expected to be cautious. There will be at least one interest rate cut in the second half of 2024, and the first adjustment may occur in September this year. The People's Bank of China will continue to adhere to the "self-centered" policy and maintain a relatively loose monetary policy to consolidate the foundation for economic recovery. The monetary policies of China and the United States will tend to converge from differentiation.

The global trend of interest rate cuts has begun. The Swiss National Bank took the lead in cutting interest rates in March 2024 and cut interest rates again in June. Subsequently, Sweden, Canada and the European Central Bank also joined the ranks of interest rate cuts. Zong Liang said that the European Central Bank is expected to cut interest rates 1-2 times in the second half of 2024. The specific path is constrained by the direction of inflation and the adjustment of the Federal Reserve's monetary policy; the Japanese economy is facing downward pressure, and the prospect of continued upward inflation is uncertain. According to a recent survey, most economists interviewed predicted that the Bank of Japan will adjust the scale of bond purchases before September.

As central banks begin to cut interest rates, the current cash returns are not expected to last for long. This means that investors holding cash, money market funds or term deposits that are about to mature need to find alternatives to manage and invest their liquidity. For investors, this means re-evaluating investment strategies and looking for investment channels that can provide higher returns. By building a diversified portfolio, investors can find better investment opportunities while maintaining liquidity.

CIO suggested that investors could consider investing in high-quality corporate bonds and government bonds.BondsAs a target for cash allocation, CIO predicts that the yield on 10-year U.S. Treasury bonds may fall to 3.85% by the end of the year, and may further fall to 3.5% by March 2025. This expectation is based on concerns about U.S. fiscal policy and fiscal deficits, which may pose risks to medium- and long-term bonds. Therefore, CIO is more optimistic about medium- and long-term bonds with a maturity date of less than 10 years.

For global stock markets, the CIO recommends that as interest rates gradually decline, investors can focus on interest rate-linked stocks, especially small and medium-cap stocks in the euro zone, consumer goods sectors, and selected US real estate stocks and stocks in the UK market. These recommendations reflect an assessment of the relative value and potential of different market sectors in the current macroeconomic environment.

The Guidelines suggest that as the US dollar enters a cycle of interest rate cuts, global assets will face new opportunities, especially the A-share market, which may benefit from the increase in US dollar liquidity, thereby bringing about an increase in valuation. Given that the A-share market has experienced two consecutive years of decline, market risks have been relatively fully released. Whether from a horizontal comparison, a historical vertical comparison, or from the perspective of the cost-effectiveness of stocks and bonds, the valuation of A-shares is at a cyclical and historical absolute low, which provides a good opportunity for global funds to allocate and deploy. However, the recovery of the economy is expected to be a process full of twists and turns. In the short term, investor sentiment may still be pessimistic, and the A-share market may present a more complex situation in the long-short game.