Note: This article is the sixth in the Ping An Securities macro research framework series. The first five articles respectively analyze the analytical frameworks of inflation, balance of payments, crude oil, medium and long-term growth and short-term fluctuations. This series reflects our efforts to systematize the tools of macroeconomic analysis. Friends are welcome to pay attention.
Ping An’s View
Recently, with the intensification of global market volatility and the recovery of gold prices, the market’s enthusiasm for gold allocation has revived, and more attention has been paid to the judgment of gold price trends. This article will first analyze the fluctuation trend of global gold prices so far, then work on establishing an analytical framework to analyze global gold price trends, and finally predict the trend of global gold prices based on this analytical framework.
The global gold price has gone through three rounds of surges, but the actual gold price is still lower than in the 1980s.
The nominal price of global gold has gone through three rounds of surges in the past fifty years, which occurred in 1971-1974, 1976-1980 and 2001-2011. During this period, the gold price increased the most during the period 1976-1980, and the increase reached more than 6 times during the period 2001-2011, and each high point of the gold price was significantly higher than the previous high point. However, the actual price trend of gold shows that its highest historical high is still the level in January 1980. The third round of rises from 2001 to 2011 did not cause the actual gold price to break through the previous high. In addition, there is a strong correlation between gold price trends denominated in different currencies. After 1995, this correlation further strengthened.
Multi-factor analysis based on gold commodities and financial attributes
In terms of commodity attributes, the annual supply of gold is relatively stable, and is too small relative to the stock size, so it will not be affected by gold prices. In most cases (some central banks sell off (except gold) will not have an impact on gold prices. Gold prices are more affected by the demand side, and investment demand fluctuates the most and most frequently on the demand side, and it has the highest positive correlation with gold prices. On the gold investment demand side, there are two main entities: official reserve and personal investment. At the official reserve level, central banks in emerging market countries are willing to continue to increase their gold holdings; at the individual investment level, gold investment demand is mainly related to inflation, exchange rates and the degree of global market turmoil.
Judgment based on the gold price analysis framework: The probability of global gold prices rising is greater
Based on the analysis of factors affecting gold prices in the previous chapter, we constructed a multi-factor analysis framework for global gold price trends and listed each The direction and strength of the correlation between factors and gold prices and the predictability of factors. Taken together, four indicators, including inflation level, real interest rate, gold price and US CPI ratio, and the U.S. dollar index, are not only closely related to the gold price, can significantly affect the gold price trend, but also have strong predictability.
Using the above analysis framework of global gold price trends, we can predict the future gold price trend based on the judgment of each factor. With the support of three major factors, including the possibility of a rebound in U.S. inflation, the possibility of a fall in U.S. real interest rates, and the increased probability of increased volatility in European and American stock markets, gold prices will rise in the future despite the negative impact of a high ratio factor between gold prices and the U.S. CPI. The probability will still be greater than the probability of falling. We are optimistic about the future performance of gold prices, which may even break through the upper edge of box shock since 2016.
Contents
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1. Introduction
"Money is naturally not gold, but gold is naturally currency." Marx's famous evaluation of gold succinctly expresses the innate monetary attributes of gold. As an extremely special commodity, the special characteristics of gold are mainly reflected in the following: ① Gold is an ideal value carrier that is easily divisible, difficult to destroy, has a high unit value and is relatively easy to move; ② Gold is highly homogeneous, easy to identify, and widely accepted And it is an extremely liquid asset; ③The flow of gold is almost negligible compared to its stock, so gold can maintain stronger price stability than other commodities. For thousands of years, gold has been considered the ultimate store of value and the preferred safe haven in turbulent times.
However, the successive establishment of the Bretton Woods system and the Jamaican system in the 20th century announced the end of the international gold standard. The attitude of international investors towards gold investment began to become polarized: one side was an extreme supporter of gold investment and recognized While gold serves as the ultimate storage carrier of real wealth, it denies the value of banknotes that lack gold support and believes that the long-term rise in the gold price fluctuation center reflects the increase in investors' real demand for wealth preservation by holding gold. On the other side are the extreme skeptics of gold investment, who deny the medium- and long-term investment value of gold. Keynes once expressed that people’s worship of gold is a “relic of the barbaric era.” Some scholars believe that the large fluctuations in gold prices are caused by investors. Caused by the influence of "animal spirits".
In the ten years from 2001 to 2011, the global gold price rose significantly from an initial low of US$256/ounce to a record high of US$1,895/ounce, an overall increase of 6.3 times; however, in the five years from 2011 to 2015, The global gold price has fallen from the historical peak of 1,895 US dollars/ounce to a stage low of 1,049 US dollars/ounce, a drop of nearly 45%. In the more than three years since 2016, the international gold price has maintained a box-like shock trend; the recent international gold price has been Starting from the stage low of US$1,178/oz in mid-to-late August 2018, it has rebounded by 14.6% to the recent high of US$1,350/oz.
It is worth noting that 2001-2011 was the longest continuous rise in gold prices since statistics are available, while 2011-2015 was the deepest correction in gold prices in the 21st century. Since then, gold prices have maintained a box-body shock pattern. . So, a natural question is, how will the price of gold perform in the future? Can the box shock since 2016 continue? If it cannot continue, will gold prices break upward or continue the downward trend from 2011 to 2015?
To answer the above questions, we not only need to review the fluctuation trend of gold prices in the past, but also need to establish an analysis framework about the factors affecting gold prices. This article will be dedicated to answering the above questions. The article will first analyze the fluctuation trend of global gold prices so far; then it will strive to establish an analytical framework for analyzing global gold price trends; and finally predict the trend of global gold prices based on this analytical framework.
2. Global gold prices have gone through three rounds of sharp increases, but the actual gold price is still lower than in the 1980s
This chapter will analyze the trend of global gold prices from three aspects. First, we will analyze the gold price trend from a long-term perspective; secondly, we will analyze the gold price from two perspectives: nominal price and real price; and finally, we will compare the similarities and differences in gold price trends denominated in major national currencies.
2.1 The price of gold has experienced three rounds of surges, with the longest one at the beginning of the 21st century.
Looking at the long-term trend, the price of gold has experienced three large-scale increases in the past half century. The first time occurred between 1971 and 1974, when the gold price rose from US$39.6 per ounce to US$179.5 per ounce, an increase of 354%; the second time occurred between 1976 and 1980, when the gold price rose from US$103.5 per ounce to US$850.0. / ounce, an increase of 721%; the third time occurred between 2001 and 2011, when the gold price rose from US$256.0 per ounce to US$1,895.0 per ounce, an increase of 640%. Looking at a longer period, before 1933, the gold price had been maintained at around US$20/ounce, with a very narrow amplitude; from 1934 to 1967, since President Franklin Roosevelt fixed the gold price, the gold price had been maintained at a level of US$35/ounce. After 1967, the gold market was liberalized, and gold prices began to fluctuate and rise, and experienced three bullish rounds in the first half of the 1970s, the second half of the 20th century, and the first decade of the 21st century.
2.2 The actual gold price trend is significantly different from the nominal gold price. The 1980s was still the highest point in history.
Judging from the trend of the nominal gold price, the gold price has had a relatively obvious trend of fluctuation and rising in the past half century, and has experienced three large-scale events. The rise also caused gold prices to reach stage highs of US$179.5/oz, US$850.0/oz, and US$1895.0/oz respectively. Each high point was significantly higher than the previous high. However, if the actual price of gold after excluding commodity prices is used, the situation is quite different. Not only was the actual price of gold relatively stable before 1970, but the long-term volatility was significantly higher than the nominal price of gold.What is even more noteworthy is that the actual highs of gold prices do not tend to rise sequentially, and the highest level so far is still the level in January 1980. The high in August 2011 was not as high as that in January 1980. If calculated based on the price at the end of the month, the high in August 2011 was US$12.77 lower than that in January 1980; based on the highest price of the month, the high in August 2011 was The high was $86.79 an ounce lower than in January 1980. The strong time trend of long-term fluctuations and increases in the nominal price of gold over time is not reflected in the actual price of gold. The actual gold price shows more of a mean reversion characteristic. If January 1967 is used as the base period (that is, the CPI index at this time is 100%), the average level of the actual gold price since 1968 is US$108.9 per ounce.
From the real returns of gold and other U.S. dollar-denominated assets from 1836 to 2018, we can find that the real average return of gold over a very long period of nearly two centuries was significantly lower than stocks and bonds, and lower than the inflation rate. Unlike silver, which is also a precious metal; in addition, the standard deviation of gold's return is lower than that of stocks and silver, and higher than that of bonds. It can be seen that investing in gold during the entire period is not as rational as investing in bonds, but gold investment is safer than stocks and silver. We divide the above two centuries into four periods according to the establishment of the classical gold standard, the establishment of the gold exchange standard and the establishment of the Jamaican system. Looking at time periods, the rate of return on gold investment has increased step by step since the classical gold standard period from 1880 to 1913, and the standard deviation has also been rising, indicating that as time goes by, the actual gold price has been increasing at an increasingly impressive rate, while fluctuating violently. The level has also increased significantly. Especially in the nearly 40 years since the establishment of the Jamaican system, the actual average return rate of gold has been only 3.16%, which is far lower than the 6.01% of stocks and the 5.01% of bonds, and even lower than the inflation rate of 3.87%; in addition, gold The standard deviation of the actual yield is as high as 0.24, which is much higher than stocks (0.15) and bonds (0.04), indicating that looking back, gold investment has not been as attractive as stock and bond investments in the past four decades.
2.3 The trends of gold prices denominated in different currencies are similar, and the correlation is stronger after 1995.
It can be clearly seen from Chart 7 that there is a certain gap between gold prices denominated in different currencies, and the gap is sometimes large and sometimes small. This is consistent with Frequent exchange rate fluctuations between the US dollar, euro, pound and Japanese yen have a lot to do with it, but this does not affect the basically consistent trend of gold prices denominated in the four currencies. Especially after 1995, gold prices denominated in different currencies showed a strong correlation. This is also related to the enhanced synchronization of the monetary policy cycle after the acceleration of the global economic integration process.
3. Multi-factor analysis based on gold commodities and financial attributes
When we construct the analysis framework of international gold prices, we consider the supply and demand of gold, global inflation levels, major currency exchange rates and the degree of turmoil in global financial markets. factor. This is a result based on the combination of gold's commodity attributes and financial attributes. Among them, gold's commodity attributes are reflected in the impact of supply and demand on price trends; while anti-inflation, prevention of currency devaluation and risk aversion are manifestations of gold's financial attributes. Investment demand affects gold prices.
3.1 The elasticity of supply to gold prices is extremely low, and has little impact under normal circumstances.
According to the latest data provided by the World Gold Council, since the beginning of human civilization, a total of 187,200 tons of gold have been mined in the world, and there are still about 54,000 tons. Gold can be mined, which means that about 77.6% of global gold reserves have been mined. According to the current mining rate, global gold reserves will be mined in less than 20 years. Of the 187,200 tons of gold that have been mined, about 35,000 tons are held by central banks as official reserves, 33,000 tons are used as industrial raw materials and dental implants, and the remaining 120,000 tons are kept in the form of jewelry. The global gold stock increased from 98,000 tons in 1974 to 187,200 tons at the end of 2018. The average annual compound growth rate and the compound growth rate of the global population during the same period were both 1.5%. This shows that the global per capita gold stock did not change during the period from 1974 to 2018. big.
Between 2001 and 2018, the global average annual supply of gold was 3,938 tons, of which 2,762 tons (about 70%) were supplied by gold mining and production, and 1,176 tons (about 30%) were the secondary utilization and reproduction of gold sold by the central bank and gold finished products.In addition, the price elasticities of gold mining production and finished product reproduction supply between 2001 and 2018 were very low, -0.05 and 0.29 respectively. It can be seen that the correlation between gold mining and gold reproduction scale and gold price fluctuations is weak.
With the increasing demand and the continuous advancement of mining technology, gold production has also increased significantly. The average annual mining volume of global gold has also increased from 572 tons in 1901-1910 to 2762 tons in 2001-2018. Due to differences in mining areas and producers, gold production costs vary greatly, generally in the range of 400-900 US dollars per ounce. Looking at the changes in the major gold producing countries, before 2000, South Africa and the former Soviet Union were the world's major gold producers. After that, the world's major gold producers became China, Australia, Russia and the United States. These four countries in 2017 Proportion of gold production in the world. The gold production of these three countries accounted for more than 37% of the total global gold production in 2017.
The supply of gold will be disrupted by many factors such as gold mine exploration or depletion, mining and smelting technology, policy changes, natural factors, and war. However, the annual new supply of gold is too small compared to the stock. Taking 2001-2018 as an example, the average annual gold supply of 3,938 tons only accounted for 2.1% of the stock and 11.2% of the global official gold reserves. Therefore, Fluctuations in gold supply and flow are not enough to have a significant impact on the stock size of gold, and thus will not have an impact on the global gold price trend. However, the collapse of gold prices in mid-April 2013 was an exception. The main reason was that the Cyprus government announced that it would sell 10 tons of gold to raise funds after it fell into trouble. This triggered market concerns that countries such as Italy and other countries in similar situations would also sell gold. As market panic and the drop in gold prices mutually reinforced each other, gold prices plummeted by US$200 per ounce in two trading days, with the overall decline reaching 13% in April 2013.
3.2 Gold investment demand has surged in the new century, dominating changes in global gold demand
From a demand perspective, although gold’s jewelry demand accounts for the highest proportion, the proportion has dropped from 80.7% in 2001 to 50.6% in 2018; investment demand accounts for The ratio increased from 9.6% in 2001 to 41.7% in 2018, which is no longer far behind the demand for jewelry; the proportion of industrial demand fluctuated slightly from 9.7% in 2001 to 7.7% in 2018. For now, the demand for jewelry accounts for about half of the total demand for gold. The investment demand from the central bank and the private sector accounts for 15% and 26% respectively, and the remaining 8% is used for industrial purposes. In addition, the price elasticities of gold's jewelry demand, investment demand, and industrial demand are -0.30, 0.77, and 0.27 respectively, indicating that global gold investment demand has a high degree of positive correlation with gold prices, and gold investment has an obvious "chasing the rise and killing the fall." "tendency.
Looking at each quarter, global gold demand is further divided into five parts: jewelry, industry, central bank net purchases, gold bars and coins, and ETF investment. It can be found that industrial demand is the most stable, while ETF investment fluctuates the most. Especially in the second quarter of 2013, as gold prices fell sharply, global gold demand shrank by 11.08% quarter-on-quarter. This was mainly due to the impact of central bank net purchases and ETF investment demand. In particular, ETF investment demand fell sharply by 402.2%. tons, so the decline in total global gold demand is almost entirely due to the decline in investment demand. The main reason for the collapse of global gold prices in April 2013 was the huge decline in investment demand for gold ETF .
From the perspective of trading methods, gold market transactions can be divided into futures trading and spot trading. The New York gold trading market is the most important gold futures trading market, and the London gold trading market is the most important gold spot trading market. In terms of trading volume, gold futures trading accounts for the vast majority, and gold ETFs, as an important part of the futures trading market, have management fees of only 0.3%-0.4%, which is significantly lower than the 2%-3% of other gold investment channels. Therefore, it has been favored by investors since its launch in 2003. With the rapid growth of trading volume, the role of gold ETF in the futures trading market has become more and more important. Under normal circumstances, the holdings of gold ETFs are highly positively correlated with gold price trends.For example, the world's largest gold EFT, SPRD Gold Trust, was established in 2004. In 2013, its gold stock held exceeded 1,000 tons, and global gold prices also rose sharply during this period; currently, SPRD holds Gold stocks fell to 790 tons, and gold prices also fell during the same period.
Over the past half century, the total global official gold reserves have remained stable at around 30,000 tons, but the distribution structure of official gold reserves has changed significantly. Judging from the distribution structure of official gold reserves, old capitalist powers such as the United States, Germany, Italy, France, the Netherlands, and Portugal hold large amounts of official gold reserves, and the ratio of gold reserves to international reserves is higher than 60%; in comparison Below, although Russia, China, Switzerland, Japan and other countries also hold large-scale gold reserves, the proportion of gold reserves in official reserves is low. The proportions of China and Japan are only 2.4% and 2.5%, and India The proportion of gold reserves in official reserves is only 6.2%, which is significantly different from the established capitalist powers. While the proportion of gold reserves in emerging markets to total international reserves is too low, emerging markets will continue to increase the proportion of gold reserves in official reserves in the future. This is also a major reason why gold prices deserve long-term optimism.
Emerging markets represented by China have regarded increasing the proportion of gold reserves as a major direction in diversifying international reserves. China's gold demand currently ranks first in the world. In 2017, China's gold imports accounted for nearly 20% of total gold demand, significantly higher than the 5.6% in 2007. In fact, since the 21st century, emerging economies such as China, Russia, and Saudi Arabia have been the most enthusiastic buyers of gold. In the next few years, the purchasing demand of the central banks of emerging market economies will continue to be an important driving force supporting the rise of global gold prices.
In summary, changes in global gold demand are largely reflected in the impact of changes in gold investment demand, among which the demand for gold ETFs is the most important, and changes in gold investment demand, mainly gold ETFs, are closely related to global Inflation rate, U.S. dollar index, global financial market turbulence and other factors are closely related. The above-mentioned factors affecting global gold investment demand will be analyzed one by one below.
3.3 Gold prices are highly sensitive to inflation and have good long-term resistance to inflation.
At present, the academic community has not reached a consensus on the ability and stability of gold prices to resist inflation. Although empirical tests mostly support gold's ability to fight inflation, opponents mainly believe that real estate investment trusts (REITs), stocks of commodity suppliers, and Treasury inflation-linked securities (TIPS) are better at hedging against inflation. Not only are the benefits higher, but the costs are lower. Additionally, the relationship between gold and inflation is not stable. After 1985, there was no obvious correlation between the price of gold and the inflation rate. However, in the 1970s, the price of gold also rose sharply during the period of sharp rise in inflation, indicating that the price of gold was more effective in resisting a sudden sharp rise in inflation. It is also a reflection of the strong sensitivity of gold prices to inflation.
In the long term, the year-on-year growth rate of global gold prices has a strong positive correlation with the year-on-year growth rate of U.S. CPI. The correlation coefficient between the two was 0.45 from 1970 to 2019. If you compare the price of gold with the U.S. CPI fixed base index, you can find the ratio between the two. That is, the actual price of gold fluctuated around the center of 3.58 from 1975 to 2019. 3.58 can even be regarded as a constant that reflects the average fluctuation of gold’s purchasing power, every ten years. Within a short period of time, the price of gold has shown a mean reversion trend. At present, the ratio of global gold prices to the US CPI index is still as high as 5.2 times, and the actual global gold price may fall back in the next few years.
In addition, the relationship between global gold prices and real interest rates can also reflect the relationship between gold prices and inflation. This is because rising inflation will bring about a fall in real interest rates. In addition, the central bank's adjustment of the benchmark interest rate is often to control inflation at a certain central level, and the benchmark interest rate often causes the real interest rate to change in the same direction. Therefore, gold price resistance to inflation will also be reflected in the negative correlation between gold prices and real interest rates.Judging from the trends of global gold prices and U.S. real interest rates from 1969 to 2019, the negative correlation between the two is still obvious, with a correlation coefficient of -0.26, which verifies the negative correlation between the two. Similar conclusions can be drawn using the inflation-adjusted real price of gold and the 10-year U.S. Treasury yield or the 10-year TIPS real yield.
Testing the relationship between gold prices and global inflation can also be achieved by testing whether gold prices can help units of gold maintain stable purchasing power. In this regard, the gold-crude oil price ratio is an indicator widely used and recognized by the market. After the U.S. dollar was decoupled from gold in 1971, the correlation between the U.S. dollar prices of gold and crude oil has been strong, demonstrating gold's stable purchasing power. Under the Bretton Woods system, the exchange ratio for gold and crude oil was roughly 12.3 barrels of crude oil per ounce of gold, and the current exchange ratio is roughly 21.5 barrels. When the exchange ratio of gold and crude oil deviates from the trend, the exchange ratio will gradually return to the trend level, but it mainly relies on changes in crude oil rather than gold prices to return to the trend level. Therefore, the trend of this ratio can help predict crude oil prices. It is worth noting that after the shale oil revolution brought about a sharp drop in crude oil prices, the gold-to-crude oil exchange rate began a two-year continuous upward trend in 2014, reaching a maximum of more than 30. Although it fell back later, it still remained at 20. Nearby, it can be seen that the fluctuation center of the gold-crude oil exchange ratio has increased due to the shale oil revolution.
3.4 The reverse trend between the U.S. dollar index and the gold price is obvious
The central banks of developed countries have a large gold reserve, and a major direction of diversification of the international reserves of some emerging market countries is to increase their holdings of gold, which shows that major central banks believe that gold can resist the fluctuations of the U.S. dollar. . Considering that the main pricing currency for global gold transactions is the U.S. dollar, when supply and demand in the gold market are relatively stable, the trend of the U.S. dollar index will often cause gold prices to move in the opposite direction. Whether looking at the trend of global gold prices and the U.S. dollar index, or looking at the year-on-year trends of global gold prices and the U.S. dollar index, there is a significant negative correlation between the two, with correlation coefficients of -0.48 and -0.40 respectively. This shows that holding gold can indeed effectively hedge the risk of the U.S. dollar index falling. Judging from the changing process of the global monetary system, under the Bretton Woods system, the price of gold was very stable. However, with the collapse of the Bretton Woods system, currency exchange rate fluctuations under the floating exchange rate system have become the main source of gold price fluctuations, and gold prices were most affected by fluctuations in the world's dominant currency exchange rates at that time. Before 1980, the global gold price was mainly dominated by the European Monetary Area, with the British pound having the greatest market power. In the 1980s and 1990s, the impact of the U.S. dollar and the Japanese yen on global gold price fluctuations exceeded that of the pound; since the 21st century, the U.S. dollar has become the only dominant currency in global gold transactions. Fluctuations in the U.S. dollar index will also significantly affect the price of gold in other currencies, but changes in exchange rates have less impact on the actual price of gold after excluding inflation.
3.5 Gold has weak medium- and long-term hedging properties and can partially hedge against fluctuations in European and American stock markets.
Gold has always been considered by the market to be a highly stable safe-haven asset, and gold prices have always maintained strong stability. This also brings about the phenomenon that when the market is in sharp turbulence, the safe-haven demand for gold often surges, thereby stimulating a sharp rise in gold prices. However, some scholars believe that certain gemstones are more valuable than gold, and gold has a low correlation with the yields of the stock market and bond market, and is less stable. In addition, holding gold can hedge against the fluctuations of European and American stock markets to a certain extent. However, for the stock markets of other developed economies or the stock markets of emerging economies, the hedging effect of gold is far less effective.
By comparing the trends of global gold prices and the US Dow Jones Industrial Index, we can see that the relationship between the two is not stable. From 1995 to 2002, the global gold price and the Dow Jones Industrial Index obviously moved in the opposite direction, while from 2003 to 2011, the gold price and the Dow Jones Industrial Index moved in the same direction.Even during the global financial crisis triggered by the subprime mortgage crisis in 2007-2008, the price of gold and the Dow Jones Industrial Index also fell simultaneously. Although the smaller decline in gold prices also showed that it has a certain hedging function, it did not reflect Gold has the property and function of being a hedging and safe-haven asset in the U.S. stock market. Between 2012 and 2015, the trends of the two reversed again. This reflects that there is no stable same- or inverse relationship between global gold prices and the Dow Jones Industrial Index, which means that gold cannot always play the role of a safe-haven asset, at least in the medium to long term. A similar conclusion can be drawn from the year-over-year trends in global gold prices and the Dow Jones Industrial Average. In fact, the safe-haven properties of gold are only more obvious when crises appear. In the medium and long term, gold's safe-haven properties may not be as good as those of the US dollar, Japanese yen and Swiss franc.
4. Judgment based on the gold price analysis framework: The probability of global gold prices rising is greater
Based on the multi-factor analysis of the dual attributes of gold commodities and finance in Chapter 3, we constructed an analysis framework for gold prices and used this framework to predict future gold prices. The trend gives judgment.
4.1 Construction of the global gold price analysis framework
The global gold nominal price has experienced three rounds of surges in the past 50 years, which occurred in 1971-1974, 1976-1980 and 2001-2011 respectively. Among them, the gold price rose in 1976-1980. The largest increase occurred during the year, with the increase reaching more than 6 times from 2001 to 2011, and each round of gold price highs was significantly higher than the previous high. However, the actual price trend of gold shows that its highest historical high is still the level in January 1980. The third round of rises from 2001 to 2011 did not cause the actual gold price to break through the previous high. In addition, there is a strong correlation between gold price trends denominated in different currencies. After 1995, this correlation further strengthened.
In terms of commodity attributes, the annual supply of gold is relatively stable and is too small compared to the stock size. It will not be affected by the price of gold, and in most cases (except for some central banks selling gold) will not have an impact on the price of gold. Gold prices are more affected by the demand side, and investment demand fluctuates the most and most frequently on the demand side, and it has the highest positive correlation with gold prices. On the gold investment demand side, there are two main entities: official reserves and personal investment. At the official reserve level, central banks in emerging market countries are willing to continue to increase their gold holdings; at the individual investment level, gold investment demand is mainly related to inflation, exchange rates and the degree of global market turmoil.
Based on the analysis in Chapter 3, we constructed a multi-factor analysis framework for global gold price trends, and listed the direction and strength of correlation between each factor and gold price, as well as the predictability of the factors. Taken together, four indicators such as inflation level, real interest rate, gold price to US CPI ratio and the US dollar index are not only closely related to the gold price, can significantly affect the gold price trend, but also have strong predictability.
4.2 With the support of three factors, the probability of gold prices rising is greater
Using the above analysis framework of global gold price trends, we can predict the future gold price trend based on the judgment of each factor. Gold prices are more likely to rise in the future.
First, let’s look at the inflation rate factor. The current global economy has experienced a coordinated recovery in 2017 and significant differentiation in 2018, and then turned to a simultaneous decline. In 2019, the global economic growth rate may hit a new low since the 2008 financial crisis. After the Federal Reserve suspended interest rate increases during the year, global central banks have loosened their monetary policies. However, whether the Federal Reserve will raise or lower interest rates in the future is still uncertain, but the market currently expects a rate cut to be more likely. Judging from the interest rate difference between U.S. Treasury bonds and TIPS, U.S. inflation expectations are at a centrally high position in recent years, and inflation levels may pick up in the future. Considering the positive correlation between gold prices and inflation, this will be bullish for gold prices.
Second, let’s look at the actual interest rate. In the first quarter, the Federal Reserve made it clear in its resolution that it would suspend interest rate increases during the year and stop shrinking its balance sheet in September, which caused the 10-year U.S. Treasury yield to fall.Considering that the U.S. economy is still in a moderate downturn, and the Federal Reserve is also ready to cut interest rates at any time in response to an unexpected economic downturn, the yield on the 10-year U.S. Treasury bond may remain volatile. In the context of rising inflation expectations, U.S. real interest rates may be lower. Fall back. Considering the negative correlation between gold prices and real interest rates, this will be bullish for gold prices.
Third, the ratio of gold price to US CPI has recently reached a high of 5.2, which is far away from the center of 3.58. The ratio may fall back in the future, which will bring a certain degree of negative impact to the gold price.
Fourth, the U.S. dollar index faces a long-short intertwined situation. The negatives are mainly due to international capital outflows caused by the U.S. economy reaching its peak and then declining moderately, the Federal Reserve's dovish monetary policy, and the decline in U.S. stock yields; while the positives are mainly due to the fact that the Eurozone economy, which is the largest benchmark currency in the U.S. dollar index, is not as good as that of the United States and the world. The U.S. dollar's counter-cyclical nature supports the U.S. dollar index amid an economic downturn, and the U.S. dollar's safe-haven properties will also support the U.S. dollar index amid heightened volatility in global capital markets. Therefore, in a situation of long and short interweaving, the U.S. dollar index will maintain a volatile pattern, and its impact on the price of gold will not be significant.
Fifth, as the U.S. dollar index remains volatile, the willingness of central banks in emerging market countries to purchase gold will be weaker than in 2018. However, considering the strategic significance of gold reserves, the willingness of central banks in emerging market countries to purchase gold is unlikely to fall significantly. The impact on gold prices is uncertain.
Sixth, although the European economy is in a downward channel and has not yet shown signs of stabilizing, it is expected that with the recovery of demand from China and the United States in the second half of the year and the effectiveness of the European Central Bank's loose monetary policy, the probability of the European debt crisis erupting again is unlikely. Italy and other southern European countries The likelihood that the state will raise funds by selling gold reserves is not high.
Seventh, although there have been short-term local financial market turbulences in emerging markets since the beginning of the year, they have not spread. Throughout the year, the stock markets of developed economies such as Europe and the United States may be more volatile than emerging markets. Considering that gold is better at hedging stock market fluctuations in Europe and the United States than in other economies, if volatility in European and American stock markets intensifies, it will bring support to gold prices.
Eighth, although global demand is difficult to continue to rise as economic growth slows down, the supply-side Middle East oil-producing countries led by Saudi Arabia have reduced production more than expected, which has brought strong support to oil prices. The Venezuelan crisis and the political turmoil in Libya are also Sentiment provided support for crude oil prices. However, under the 2020 U.S. election Trump demands for re-election, the probability of oil prices continuing to rise sharply is not high. In the context of the petrodollar system still functioning, Saudi Arabia's production reduction may be subject to external interference from the Trump administration. Oil prices are expected to The pattern of shocks will remain in the future, which will not have a significant impact on the trend of gold prices.
To sum up, with the support of three major factors such as inflation rate, real interest rate and global market turbulence, despite the negative factors of gold price and US CPI ratio factor, the probability of gold price rising in the future will still be greater than the probability of falling. We are optimistic about the future. The performance of gold prices may even break through the upper edge of the box shock since 2016.
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