Economic Observer reporter Chen Shan“As soon as the cannonball rings, gold is worth 10,000 taels.” In the context of the fermenting conflict between Russia and Ukraine, global risk aversion pushed the price of gold higher, which also triggered a “heartbeat” in the gold market.
On February 24 (Thursday), the international spot gold exploded to over US$60/oz in a short-term intraday session. After more than a year, it broke the US$1,970/oz mark again, and reached a high of US$1,974/oz in the day. Rush to 8%. Afterwards, the price of gold jumped again and closed at US$1,903.5/oz, a “heartbeat” market with sharp rises and falls in the day.
Against the background of soaring inflation in the United States and the fermenting conflict between Russia and Ukraine, the price of gold has seen a round of upward movement since February. As of 16:00 on February 25, the price of gold stabilized after the sharp fluctuations in the previous trading day, running around US$1,915 per ounce, with a cumulative increase of nearly 5% during the year.
The global financial market is rapidly interpreting and responding to the Russian-Ukrainian geo-risk events. The rising and falling gold prices have also raised concerns about whether the haze of the short-term war can continue to boost the price of gold. After the demand for hedging has declined, investors have allocated gold Where should the logic go back to?
Risk aversion heats up
Recently, the relationship between Russia and Ukraine has continued to be tense, and the political game between the two countries has set off turmoil in the global financial market, while safe-haven gold is shining under the fire.
On February 21, the situation in Russia and Ukraine escalated, and the Udong Donetsk civilian armed forces declared a state of emergency in the Donetsk region. This situation continued to increase the risk aversion in the market. On the evening of February 21, international spot gold broke through a new high of US$1,900/oz, and reached a peak of US$1,914/oz on February 22, hitting a new high in more than 8 months.
On February 24, Russia launched a full-scale military operation against Ukraine, and major global stock indexes fell in response. The risk aversion triggered by the war caused gold, silver and other precious metals to rise. In the intraday session, the international spot gold rose sharply, hitting a record high since September 2020. A new high of $1974/oz.
When talking about the reasons for the recent rise in the price of gold, Wang Xiang, manager of the Bosera Gold ETF, analyzed to a reporter from the Economic Observer that the most important driving factor during the week was still the influence of geopolitical events in Eastern Europe. Interpretation of the minutes of the January interest rate meeting (hereinafter referred to as the “minutes”). He noted that the minutes outlined plans to raise rates and reduce asset holdings on the balance sheet, but did not signal a 50 basis point hike as the market expected. Since the market was quite satisfied with the tightening rhythm in the early stage, and even at one time expected to raise interest rates up to 7 times during the year, after the announcement of the actual minutes, the market’s worries have cooled down, and it has also become one of the supports to support the gold price.
Although the price of gold quickly “dived from a high altitude” after the skyrocketing, as of 16:00 on February 25, the price of gold stabilized after the sharp fluctuations in the previous trading day, running around US$1,915 per ounce, and the cumulative increase for the year is still close to 5%. Valeria Bednarik, chief analyst at FXStreet, wrote that the demand for the dollar has triggered a sharp correction in gold, but as long as it holds $1,900 per ounce, there is still room for gold prices to rise sharply. “Very special geopolitical factors may indeed have some short-term impact on gold prices, depending on how much geopolitical influence is.” According to Wang Lixin, CEO of the World Gold Council China, the recent events in Ukraine involve There are many factors, the influence is not small, and now there are many reactions in the market. Historically, people tend to put more emphasis on gold when certain geopolitical tensions that are prone to major repercussions continue to escalate.
In Wang Lixin’s view, gold is an efficient safe-haven asset that can help investors hedge against tail risk events. Research by the World Gold Council shows that gold prices denominated in different currencies have provided reliable and strong performance in different tail risk events. For example, in the month of the “9.11” event, the price of gold rose by nearly 10%, while risk assets such as US stocks appeared. In the first quarter of 2020, when the epidemic was raging, the RMB gold price rose by more than 9%, and the domestic stock market was weak. “These all show that when risk events occur and investors’ risk appetite drops significantly, gold’s strategic value is highlighted and it has become a safe haven for most investors.” Wang Lixin said.
The data also shows that the gloom of the short-term war is looming, and gold has regained the favor of market funds as an important safe-haven asset. Investors are buying gold in various forms as a hedge against risk. The data shows that holdings in SPDR Gold Shares, the world‘s largest gold-backed ETF, have seen a net inflow of more than 50 tonnes since hitting a 20-month low in December.
In addition, investors have also made good returns on gold investments this year. Communication data shows that as of February 25, since the beginning of this year, 29 gold-themed funds in the domestic market (each share is calculated separately) have all recorded positive returns, with an increase range of 3% to 6%, of which 25 have returned more than 5% during the year.
Be wary of callbacks
The Russian-Ukrainian crisis has stimulated the international spot gold to stand at $1,900/oz. Does it mean that the gold price has effectively broken through? After the emergency, where will the gold price go? What factors should investors pay attention to?
Zhan Dapeng, director of non-ferrous metals of Everbright Futures Research Institute and senior researcher of precious metals, said in an interview with a reporter from the Economic Observer that the strategy of step-by-step escalation of geopolitics has made market expectations unexpected and maximized, but it also means that the market has no interest in gold. The differences in the market outlook will no longer increase, and the geopolitical influence of Russia and Ukraine has been fully expected in both the capital market and the derivatives market, so the gold price has also seen long profit-taking.
Zhan Dapeng believes that if the geopolitical dispute between Russia and Ukraine does not continue to deteriorate in the later period, the risk-averse nature of gold prices may be further weakened, and there is even the possibility of periodic corrections. In March, the focus of the gold market may gradually return to the Fed’s monetary policy. The current trend of gold and the real interest rate of the United States has diverged. Whether the interest rate hike is a “bad landing”, the gold market will have a clearer feedback at that time.
By studying the impact of 10 typical geopolitical conflict events on major asset classes since the beginning of the new century, the Zhongtai Securities Research Institute concluded that the price of gold tends to rise under the spread of panic before the war; , the price of gold does not necessarily rise.
By reviewing the changes in gold prices before and after previous conflicts, the Zhongtai Securities Research Institute found that although geo-risk events are uncertain and sudden, and the specific time of conflict cannot be predicted, some geo-conflicts have a long gestation period in the early stage. Under the spread of pre-war panic, gold prices tended to rise. In the first three months of the ten geopolitical conflicts since the beginning of the new century, most of the COMEX gold prices rose, and only fell back before the two wars. One was the Macedonian armed conflict with a smaller war scope, and the other was the Russian-Georgian war. At that time, the United States implemented a strong U.S. dollar policy to curb inflation, causing gold prices to fall.
Research shows that the price of gold does not necessarily rise after the outbreak of a geo-risk conflict. During the ten geopolitical conflicts since the beginning of the new century, the price of gold rose 5 times and fell 5 times. Generally speaking, the market has fully anticipated before the war, and after the war officially started, under the background of exhaustion, the price of gold may fall back.
Wang Xiang also said that according to the Fed’s speech agenda, Atlanta Fed President Bostic and Cleveland Fed President Mester will deliver speeches recently. These two views are hawkish and may cause concerns about interest rate hikes to heat up again. The boost to gold from geopolitical events tends to be short-term, so the gold market should beware of the risk of rising and falling while the heat is rising.
Wu Guoqing, a fund manager of Qianhai Open Source Fund, believes that from a cyclical perspective, the price of gold has undergone quantitative easing in 2020 and 2021, and is currently at the point of currency contraction in 2022. This year’s TAPER, interest rate hikes, and even the possible shrinking of the balance sheet will lead to an upward trend in the yields of U.S. bonds, which in turn will lead to a reversal of real interest rates and a repression pattern for gold prices as a whole. On the whole, the short-term gold price may continue to be volatile and weak, but it is worth noting that in the medium term, the gold price is expected to bottom in 2022, and the risk on the interest rate side will be fully released with the implementation of interest rate hikes and balance sheet reductions. Will enter the next round of bull market channel. Therefore, for investors with medium-term allocation, 2022 may be a very good allocation node.Return to Sohu, see more
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