At the beginning of 2022, gold prices continued to rebound against the downward trend of last year’s shock. As of February 15, the price of Comex gold futures once exceeded US $1881 / oz and closed at US $1855 / oz, rebounding 4.67% from the low point in December 2021. The sharp rise in geopolitical risks in Russia and Ukraine, the continued high inflation in developed economies, the peak of gold consumption in the Asian market and other factors jointly contributed to the current round of rebound in gold prices.
First, geopolitical risks raised risk aversion and pushed up the price of gold. Since 2022, the situation in Ukraine has been fermenting, and geopolitical risks have reached a phased high. Historical experience shows that during the period of rising geopolitical war risks, gold often becomes a “safe haven” for global capital. The situation in Russia and Ukraine raised the risk aversion of global investors and transferred funds from risky assets to safe haven assets. The VIX volatility index soared by more than 40% to 32.04 from February 9 to February 14, leading the short-term rise of gold prices.
Second, inflation in the United States continued to remain high, and anti inflation demand drove up the price of gold. In January 2022, the US CPI rose by 7.5% year-on-year, reaching or higher than 5% for nine consecutive months, the fastest increase since March 1982. At present, the bottleneck of the US supply chain has not been significantly improved, service consumption has gradually recovered from the impact of the epidemic, and inflation may continue to run at a high level in the short term. On the one hand, under the background that inflation continues to rise and the Fed’s expectation of raising interest rates has been basically digested by the market, investors are worried that inflation will continue to impact economic growth and equity asset prices, and gradually increase the weight of safe haven assets such as gold in the portfolio. According to the data of the World Gold Council, in January 2022, the global gold ETF situation reversed, with a net inflow of 49.0 tons (about US $2.9 billion) in North America and 6.7 tons (about US $385 million) in Europe. The net long position of Comex gold futures increased from 709 tons at the end of 2021 to nearly 765 tons (about US $44 billion). On the other hand, the sustained high inflation has maintained the real negative yield of US Treasury bonds for a long time. As a “zero coupon bond”, gold is favored by the market for its anti inflation function, driving the gold price upward.
Third, the Asian market has ushered in a peak of gold consumption, and consumer demand supports gold prices. The steady growth of gold demand in China and India, which are traditional gold consuming countries, is conducive to supporting gold prices. According to the “2022 China National Gold Group Gold Jewellery Co.Ltd(600916) Market Outlook” of the World Gold Council, on the one hand, gold commodities with the tiger element of the Chinese zodiac are welcomed by consumers. On the other hand, due to the covid-19 epidemic, Chinese consumers choose to cancel their return and tourism plans. Consumers have a strong willingness to consume gold and have an abundant budget. During the Spring Festival, China’s demand for physical gold commodities was strong, and gold consumption increased by 12% year-on-year. During the period of low gold prices, India’s gold consumption soared and its imports rose sharply. According to statistics, India’s gold imports reached 1050 tons in 2021, a ten-year high, far exceeding the 430 tons level in 2020.
Fourth, the gold price continues to rise, and the kinetic energy is insufficient. In the short term, due to the impulsive impact of geopolitical events on gold, the sustainability is relatively poor. Gold prices may fall as the situation in Russia and Ukraine eases. In the long run, as US inflation expectations begin to fall, the Fed’s interest rate hike is about to enter a substantive stage, and the real yield of US Treasury bonds tends to continue to rise, which will put pressure on the price of gold.
