A chief economist's perspective on the past, present, and future of gold

Top Viewpoint

The widespread over-issuance and devaluation of global currencies have driven up gold demand. Therefore, the long-term logic of gold's rise is valid.

Li Xunlei, Chief Economist, Zhongtai International

Central banks around the world are increasing their gold holdings, which is a signal worth noting.

Xiong Yuan, Chief Economist, Guosheng Securities

The rise of gold reflects the weakening reality of US dollar hegemony. Gold has become a pricing "anchor" during times of uncertainty.

Gao Ruidong, Chief Economist, Everbright Securities

The current logic of the gold bull market is complete. As for the duration, we should closely monitor the progress of technology, cryptocurrencies, debt issues, and the monetary system.

Lu Zhengwei, Chief Economist, Industrial Bank

◎Reporter Zeng Qingyi

Recently, the price of gold has "gone crazy." In the past week (April 10-16), the London spot gold price hit a record high five times, and for the first time exceeded the $3300 per ounce mark.

Based on the closing price on April 16, the London spot gold price has increased by more than 25% year-to-date, approaching the full-year increase for 2024.

Since the beginning of this year, many chief economists at the "SSE Chief Forum" have clearly expressed their optimism for gold, believing that gold is an important option for asset allocation. Will gold prices go even higher in the future? What are their latest assessments?

Gold Prices "Soar": Up Over 25% Year-to-Date

On April 17, domestic gold prices hit a new high.

Although the London spot gold price on April 17 showed a certain degree of correction from the previous day's record high of over $3350 per ounce, domestic gold prices still maintained an upward trend. Data shows that as of the close on April 17, the highest intraday price of Shanghai Gold Exchange spot gold Au99.99 was 795.36 yuan/gram, and the highest intraday price of the main Shanghai gold contract was 796.70 yuan/gram.

On the same day, the domestic prices of gold jewelry from several brands rose accordingly, exceeding 1025 yuan/gram for the first time in history. Specifically, the prices of gold jewelry announced by Chow Tai Fook, Lukfook Jewellery, Chow Sang Sang, and Tse Sui Luen were 1028 yuan/gram, Chow Sang Sang was 1027 yuan/gram, and Lao Miao Gold in Shanghai was 1025 yuan/gram.

Since the beginning of this year, both international and domestic gold prices have increased by more than 25%.

Experts generally believe that the market's hedging sentiment towards the US "reciprocal tariff" policy and "de-dollarization" are the main drivers of the gold price increase in the first quarter.

The soaring gold price has also driven the heat in the gold recycling sector.

Jin Ya Fu Smart Gold Store's total recycling volume in the past month (March 15 to April 15) increased by 96.33% compared to the same period in 2024.

Data from Zhuanzhuan Group, a circular economy company, shows that since April, the group's gold recycling weight has increased by 66.5% month-on-month; in the past week, the top five cities with the largest increase in domestic recycling volume were Ningbo, Shenzhen, Chongqing, Jinan, and Chengdu, with month-on-month increases of 559%, 202%, 202%, 154%, and 122%, respectively.

As of April 16, the total amount of gold recycled through all channels of Aihuishou, under Wanwu Xinsheng Group, has increased by 180% year-on-year since the beginning of this year, with the largest single recycling weight being 5000 grams.

Top Viewpoint:

Multiple Factors Push Gold Prices Upward

Looking at the longer timeline, gold entered a bull market starting in 2019. At that time, the London spot gold price was around $1300 per ounce. Since 2023, gold prices have risen sharply. Several chief economists have analyzed the factors affecting the trend of gold prices.

Lu Zhengwei, chief economist of Industrial Bank, said at the "SSE Chief Forum" held on April 2 that the trend of gold prices in recent years has been affected by several major long-term and medium-term factors. One of them is the rising macro leverage ratio of major economies. Currently, the macro leverage ratio of many economies has not decreased significantly after rising. If the global supply of credit currency is faster than the supply of gold, it means that the price of gold relative to credit currency is rising.

At the first "SSE Chief Forum" held on February 8, Li Xunlei, chief economist of Zhongtai International, analyzed the gold bull market from a historical perspective. He was optimistic about gold at the beginning of 2016 and continuously recommended its allocation. Li Xunlei's team's research found that since 1971, the price of gold has outperformed the CPI and the US real estate price index. In Li Xunlei's view, the widespread over-issuance and devaluation of global currencies have further deepened people's concerns about the rampant paper money, leading to strong demand for gold, an asset with natural monetary attributes. Therefore, the long-term logic of gold's rise is valid.

At the same time, experts generally mention that the restructuring of the international monetary system has also become an important factor affecting the trend of gold prices.

At the "SSE Chief Forum" held on February 28, Gao Ruidong, chief economist of Everbright Securities, said that the rise of gold reflects the weakening reality of US dollar hegemony: on the one hand, the disorderly expansion of US external debt has caused investors to worry about the stability of the US dollar's value; on the other hand, the "weaponization" of the US dollar has impacted the global financial order, increasing concerns about the safety of US dollar assets. In this case, gold, as a reserve asset, has become a pricing "anchor" during times of uncertainty and an important tool for hedging against US dollar credit.

"After the Ukraine crisis, Russia's foreign exchange reserves were frozen by the Group of Seven (G7). This has raised questions about whether the US dollar can continue to fulfill its role as an international reserve currency as it has in the past. Gold, however, is hard currency that can be used for general payments." said Lu Zhengwei.

Lu Zhengwei also mentioned the profound impact of economic cycles and industrial technology cycles on gold prices. Industrial Bank's research found that the current global economy fits the characteristics of the depression phase of the Kondratiev wave. Historically, the probability of gold rising during the depression phase of the Kondratiev wave is 100%.

Outlook for the Year:

The Logic of Gold Price Upward Trend Remains, but Correction Risks Should Be Guarded Against

How will the gold market perform in 2025? Experts believe that the logic behind the upward trend of gold prices has not fundamentally changed. Due to the continued uncertainty in the global economy and politics, factors such as market demand for safe-haven assets, emerging market central bank gold purchases, and market expectations for Fed rate cuts may support gold prices in the medium to long term.

Guosheng Securities chief economist Xiong Yuan said at the "SSE Chief Forum" held on February 20 that in addition to increased hedging demand, there is a potential support point for gold prices, namely that some US government policies may reduce dollar credit. In addition, central banks around the world are increasing their holdings of gold, which is also a signal worth paying attention to.

In fact, with high US interest rates and high inflation, increasing gold allocation is not the best time. Why are central banks around the world still choosing to increase their holdings of gold? Li Xunlei analyzed that in addition to the global flooding of paper currency, global uncertainty and geopolitical factors are the main factors contributing to the popularity of hedging tools such as gold.

With the significant rise in gold prices, the investment enthusiasm of individual investors for gold has continued to rise, and the marketing of gold-related financial products has gradually heated up.

When asked how to do a good job of asset allocation, Lu Zhengwei believes that first, investors need to understand themselves, clarify how much funds can be used for investment, how long they can invest, and their own risk tolerance; second, asset allocation cannot expect every product to make money, but should be like "grabbing Chinese medicine", appropriately allocating both high-risk and low-risk assets.

Lu Zhengwei's team's research found that over more than 10 years, if the investment portfolio includes a certain proportion of gold, it can smooth the curve, increase returns, and make the portfolio's profit and loss fluctuations more stable. However, although adding gold can reduce portfolio risk, adding too much will also affect returns.

Xiong Yuan reminded that in the short term, gold can be said to be "high and cold". If there is an adjustment, gold can still be considered as a standard configuration. Li Xunlei also reminded that the adjustment period is a time to buy gold, but don't chase the rise.