Core view
Gold has the dual attributes of assets and commodities. Gold is widely used in finance, gold jewelry and other fields. From the perspective of asset attributes, in recent years, the financial status of gold has received renewed attention from sovereign countries. From 2000 to 2020, China National Gold Group Gold Jewellery Co.Ltd(600916) reserves increased by 1553.3 tons, Turkey’s gold reserves increased by 600.0 tons and India’s gold reserves increased by 318.9 tons. From the perspective of commodity attributes, the physical demand for gold mainly comes from gold jewelry and science and technology. Among them, the demand for gold ornaments accounts for a large proportion. In 2021, the demand for gold ornaments reached 2220.9 tons, an increase of about 67.3% over the same period in 2020. The China National Gold Group Gold Jewellery Co.Ltd(600916) demand is the world leader. In 2021, China’s demand for gold ornaments reached 700.6 tons.
The long-term low real interest rate has created conditions for the rise of gold. Since 2000, Comex gold has shown a highly correlated trend with the real interest rate, with a correlation coefficient of -0.91. The long-term average real interest rate of US Treasury bonds has continued to decline since October 2018. As of February 15, 2020, the real interest rate was still lower than that of February 15, 2020. The continuous low operation of real interest rate has created sufficient conditions for the rise of gold price.
High inflation boosted gold prices. In January 2022, the US CPI increased by 7.5% year-on-year, a new high in 40 years, and is still in the upward channel. Inflation is mainly due to the loose monetary policy and fiscal policy in the early stage. Under the policy stimulus, the shortage of commodities in supply has intensified and prices have continued to rise. As of February 14, 2022, the settlement price of WTI crude oil futures was US $95.46/barrel, up 58.7% year-on-year. It is expected that the future economic recovery and policy easing will be difficult to end in the short term, the rise of bulk commodities will boost inflation further, the anti inflation demand for gold will increase, and the gold price is expected to rise further.
External risks remain, and uncertainty supports gold prices. First, the spread of Omicron is making the global number of new infections experience a fourth wave of outbreak. As of February 24, 2022, the number of newly confirmed cases of covid-19 pneumonia in the world had reached 1475800. In the context of the continuous spread of the global epidemic, the uncertainty of the future economic situation still exists. Secondly, the Ukrainian issue has shown a trend of continuous upgrading. The whole territory of Ukraine has entered a wartime state, and the fluctuation of the global equity market has increased. As of February 24, 2022, the average value of VIX Index in 2022 was 24.19 points, higher than 19.67 points in 2021. The overall market volatility is still relatively high, and the uncertainty of the global economy may bring some support to the gold price.
Not afraid of raising interest rates, gold is expected to be strong against the trend. Historically, half of the six interest rate hikes in the United States since 1980 have seen gold prices rise. It is expected that under the catalysis of three factors, the impact of this interest rate increase on gold prices may be limited: first, the macro-economy is fragile, and the interest rate increase inhibits the economic recovery. Under high inflation, the expectation of US interest rate hike is strong. As of February 24, 2022, the yield of us 10-year Treasury bond was 1.96%, up 0.44pct from the beginning of the year. The rapid rise of interest rates will not be conducive to economic recovery. Second, inflation is high and the impact of expected interest rate hikes is limited. During the past six interest rate hikes, the year-on-year growth rate of us CPI has increased by 0.7%, 4.0%, 0.3%, 1.1%, 1.0% and 1.7% respectively. Therefore, it is difficult for interest rate hikes to have an essential impact on inflation. Third, the expectation of raising interest rates is digested in advance, and the negative factors are gradually released. In the past six interest rate hikes, the average rise and fall of gold in the year, half a year and one month after the interest rate hike were 6.67%, 7.81% and 0.02% respectively. The market preemptive effect is obvious. Therefore, the negative factors such as interest rate increase are released in advance, and gold is expected to continue to be strong after the interest rate increase is implemented.
Investment advice
Relevant enterprises may benefit from the continued prosperity of the gold sector, such as Zijin Mining Group Company Limited(601899) , Chifeng Jilong Gold Mining Co.Ltd(600988) , Yintai Gold Co.Ltd(000975) , Shandong Gold Mining Co.Ltd(600547) , Zhongjin Gold Corp.Ltd(600489) , etc.
Risk tips
International geopolitical changes, abnormal fluctuations in commodity prices and changes in macroeconomic policies.
