Core view
Recently, gold prices have risen rapidly and reached an 18 month high. On the evening of February 24, Comex gold futures reached the highest price of US $1976.5/oz, a new high since September 16, 2020. At the same time, the London gold now shows the same trend, with the highest price reaching US $1974.4 per ounce, the highest price in 18 months.
The intensification of international geopolitical contradictions is the main reason for the recent rise in gold prices. Recently, the Ukrainian issue has shown a trend of continuous escalation. According to Russian media reports, on January 24, 2022, Ukrainian troops began to assemble near the ceasefire line in eastern Ukraine, and the conflict between Russia and Ukraine has intensified since then. On February 24, 2022, Russian President Vladimir Putin ordered military operations in the Donbas region in eastern Ukraine. After that, Russian troops broke through the border of Kharkov state and attacked Ukrainian military air defense facilities. On the same day, President zelens of Ukraine announced that the whole territory of Ukraine would enter a state of war and break diplomatic relations with Russia. Affected by the direct March of Russia, the price of gold rose sharply. The current price of gold in London rose by 4.1% on the same day, the largest increase in nearly a year.
Global inflation continued to rise, creating conditions for the rise in gold prices. First, according to the CPI year-on-year data released by European and American countries, the CPI of the United States increased by 7.5% year-on-year in January 2022, the highest level since August 1982; In January 2022, the CPI of the euro zone increased by 5.1% year-on-year, a record high. In addition, the recent rising crude oil price also reflects that the current inflation level is further rising. On February 24, 2022, NYMEX crude oil price rose to $100.54/barrel and WTI crude oil price rose to $97.74/barrel, both reaching a new high since 2014. As an anti inflation asset, gold has sufficient upward mobility under the current high inflation level.
The overall fragility of the global economy has pushed gold prices upward. At present, accidents occur frequently in the overall economic environment. First of all, judging from the current covid-19 epidemic situation, as of February 23, 2022, there were 1.5716 million new covid-19 infections worldwide. Although it decreased from the peak of about 4 million cases in the previous period, it was still significantly higher than the overall level in 2021. Secondly, affected by the continuous disturbance of the epidemic and the intensification of geopolitical conflicts, the global stock market has fluctuated significantly upward since 2022. As of February 23, 2022, the US Standard & Poor’s 500 volatility index (VIX) closed at 31.02 points. The average level since the beginning of 2022 is about 24.02 points, higher than the average level of 19.67 points in 2021. With the global economy still facing great uncertainty, the gold price is expected to show a continuous upward trend.
The expectation of raising interest rates was gradually digested, and the resistance to the rise of gold gradually disappeared. At present, the market’s expectation of future interest rate hikes is becoming stronger and stronger. It is expected that the gold price will continue to be strong in the process of this round of interest rate hikes. On the one hand, as the time approaches March, the gold price remains strong, indicating that the negative effect of the current interest rate hike on gold is weakening and the market expectation is gradually digested. On the other hand, it is expected that this interest rate increase will have a limited impact on gold prices. During the past six interest rate hikes, the year-on-year growth rate of CPI in the United States has continued to increase, so this interest rate hike may not have an essential impact on inflation; At the same time, raising interest rates will curb economic recovery. As of February 23, 2022, the yield of us 10-year Treasury bonds was about 1.99%, up about 0.36pct from the beginning of the year. The rapid rise of interest rate will bring operating pressure to enterprises and is not conducive to economic recovery.
Investment advice
The gold price has reached a new high. Under the influence of geopolitics, high inflation, fragile economic operation and the gradual disappearance of negative interest rate hikes, the gold price is expected to open an upward channel, and the gold production enterprises may benefit. The relevant targets include Zijin Mining Group Company Limited(601899) , Chifeng Jilong Gold Mining Co.Ltd(600988) , Western Region Gold Co.Ltd(601069) .
Risk tips
Unexpected changes in International Geopolitics, abnormal fluctuations in commodity prices and changes in macroeconomic policies.
