Understand the logic behind the rise in international gold prices
Gold prices have hit record highs this year. As of the close of trading on August 27, London spot gold reached $2524.36 per ounce, a new all-time high, with a year-to-date increase of over 22%. The significant rise in gold prices can be analyzed from short-term, medium-term, and long-term perspectives. From a short-term perspective, the rise in gold prices is supported by risk aversion. From a medium-term perspective, expectations of a Fed rate cut are rising. From a long-term perspective, changes in supply and demand have pushed up the central price of gold.
Time:
2024-09-01 13:36
Gold prices have hit record highs this year. As of the close of trading on August 27, London spot gold reached $2524.36 per ounce, a new historical high, with a year-to-date increase exceeding 22%. The significant rise in gold prices can be analyzed from short-term, medium-term, and long-term perspectives.
In the short term, safe-haven sentiment has supported a rapid rise in gold prices. Geopolitical conflicts have intensified in recent years, particularly the escalating tensions in the Russia-Ukraine conflict and the Israeli-Palestinian conflict, coupled with the uncertainty surrounding the US elections, increasing market concerns about future global economic growth and driving more capital towards safe-haven assets like gold. Simultaneously, the profit-making effect of rising gold prices in the financial market has further amplified the price increase through speculative trading.
In the medium term, expectations of a Fed rate cut are rising. International gold prices are denominated in US dollars, and the direction of the Federal Reserve's monetary policy has always been a key factor influencing gold prices. As downward pressure on the US economy increases and the upward momentum of inflation weakens, the market generally expects the Fed's monetary policy to shift to a loose cycle this year. Recently, Fed Chairman Powell stated that the time to adjust monetary policy has arrived, and market expectations for a rate cut in September are even stronger. Historically, gold prices have often shown an upward trend after a rate cut, leading investors to accept the relationship of "rate cut—weakening US Treasury yields—pushing up gold prices." The expectation of a shift in monetary policy has become an important driver of gold's rise.
In the long term, changes in supply and demand have pushed up the central price of gold. In the past two years, global central banks have begun to buy large quantities of gold due to factors such as seeking financial security and de-dollarization. In 2022 and 2023, global central banks and sovereign institutions increased their gold holdings by more than 1,000 tons, accounting for about one-third of the year's global gold production. The gold purchased by central banks, as official reserve assets, does not circulate in the market. Coupled with strong demand from consumers in countries such as China and India, this has, to some extent, disrupted the past market supply-demand relationship, providing a long-term upward driving force for gold prices.
Factors influencing gold prices include geopolitical situations, the direction of Federal Reserve policy, market risk and uncertainty levels, and long-term changes in supply and demand. Because the mechanisms by which these variables affect gold prices differ, investors need to closely monitor and understand these variables to understand the logic behind the rise in gold prices and make rational judgments about future trends.
Although some market participants believe that gold prices still have the potential to surge under the strong expectation of a Fed rate cut in September, it's important to note that gold prices typically rise before the Fed's rate cut cycle begins, and the market's forward-looking trading characteristics are quite pronounced. The current gold price already reflects some "feedback" on the effects of a rate cut. This means that the volatility of gold prices may increase in the coming period, and investors should remain cautious when entering the market.
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From the perspective of the international market, the tense situation in the Middle East, the escalation of the Russia-Ukraine conflict, and the continued high uncertainty surrounding the US Trump administration's tariff policies have driven up gold prices due to increased risk aversion in the market. Furthermore, a significant recent change in the gold market is that gold has become the second-largest reserve asset for central banks globally. How should the future trend of gold prices be viewed? Several analysts have indicated that in the short term, gold prices may fluctuate due to factors such as tariff easing and sudden changes in the geopolitical situation; in the medium to long term, gold prices are still in an upward channel.
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Gold prices return to $3300! Wall Street banks show significant divergence in long-term outlook
In fact, as gold prices fluctuate, Wall Street's major banks have recently shown a clear divergence in their views on gold prices. Unlike Goldman Sachs and Deutsche Bank, which are optimistic about gold's performance, Citigroup believes that the long-term outlook for gold prices is not optimistic.
Although gold prices rose this week, market volatility has clearly increased. While the US-UK agreement is symbolic, its content is limited and insufficient to alleviate concerns about a global economic slowdown. Therefore, gold prices will continue to fluctuate between safe havens and policy signals, closely monitoring the Federal Reserve's interest rate expectations and global trade sentiment.