Zhitong Finance and Economics learned that Huatai ** released a research report saying that the recent *** broke through again, hitting a record high. In the past three trading days, ** has jumped nearly 5%, and the gold price of the London Exchange touched as high as $2,141 an ounce intraday on March 5, and volatility has increased significantly. The direction of change in the current round of gold prices** and macro fundamentals is broadly consistent, but the magnitude is significantly beyond the scope of macro variables. At the event and other driver level, while premature, markets are rapidly pricing in a possible outcome in the US**. At the same time,Factors such as the "spillover effect" of a large amount of capital flowing into alternative assets this year may have contributed to this rally. Although the short-term volatility rise contains the most important risks, we maintain optimistic expectations for gold prices in the medium to long term.
Foreword:
Recently, *** broke through again and hit a record high. In the past three trading days, ** has jumped nearly 5%, and the gold price of the London Exchange touched as high as $2,141 an ounce intraday on March 5, and volatility has increased significantly. Although the long-term optimism about the space and allocation value of ****, the recent rally does not seem to be fully explained by the traditional macro analysis framework (see "The Macro Logic of Gold Prices**" 2023 10 25 and "Gold Price Performance is Still Expected" 2023 12 4). This article briefly analyzes the macro and market logic of the current round of gold prices, and updates the long-term value analysis and trend judgment of ** as an allocation asset.
The main points of Huatai ** are as follows:
On the whole, the direction of change in the current round of gold prices** and macro fundamentals is roughly the same, but the magnitude is significantly beyond the scope of macro variables. At the event and other driver level, while premature, markets are rapidly pricing in a possible outcome in the US**. At the same time, factors such as the "spillover effect" of a large amount of capital inflow into alternative assets this year may have contributed to this round of rally. Although the short-term volatility rise contains the most important risks, we maintain optimistic expectations for gold prices in the medium to long term.
1.* is broadly consistent with global macro variables, but gold prices are relatively volatile. Since February, inflation expectations have picked up as both US employment and inflation data for January have significantly exceeded expectations. However, last week's rally appeared to have accelerated, and it cannot be ruled out that it was related to the relevant developments in the United States** - on March 5, the 1-year and 10-year tips breakeven inflation expectations rose by 13 and 1 basis points, respectively, from the previous week's lows, but the Treasury rate was small**, and the implied real interest rate fell - the one-year real rate fell by 21 basis points from the previous week's high, while the 10-year real rate also retreated from the recent high. At the same time, the U.S. dollar index also retreated 1 from its mid-February high2% to 1036。However, while the direction is aligned, real interest rates and volatility in the dollar index have not jumped as much as **. Obviously, the explanatory power of macro variables on gold price changes is not sufficient.
2.While premature, recent developments in the US** may also start to prompt investors to price in a possible "transition" earlier, in the form of higher risk premiums and asset volatility, and higher inflation expectations. Since last week, the odds for the 2024 U.S. ** have been further tilted in favor of Republican candidate Trump: on March 5, the U.S. Supreme Court overturned Colorado's decision to disqualify Trump**; On March 6, Trump won 14 of the 15 states that held primaries on "Super Tuesday", and there is a high probability of locking in the Republican ** election nomination. Admittedly, there is still a lot of uncertainty in the U.S., which will be held in November this year, but market pricing tends to be dynamically adjusted and laid out in advance.
3.Since the beginning of this year, a large amount of funds have been allocated to more "alternative" assets, which has also had a certain "spillover effect" on gold prices. * In addition, it was observed that the overall performance of alternative assets this year was outstanding. Broad alternative assets are defined here as asset classes that 1) are not long-term, traditional mainstream allocation targets, but more importantly, 2) often have "independent**" performance and are less correlated with other assets. Note that a number of alternative assets** have recently hit new highs this year, such as Bitcoin, Nikkei, etc. Admittedly, Bitcoin and Japan** are gaining popularity, both for their own structural reasons (see Why Japan's Economy Is "Recession" but Strong?). 》，2024/3/4)。
However, it is an indisputable fact that alternative assets have performed well. One possible explanation is that this year is a year of intensive global and transitional, coupled with many geopolitical uncertainties in Europe and the Middle East, the demand for alternative assets has increased significantly in an environment where U.S. stocks have been sharply rated, industry performance is concentrated, and the Fed is still uncertain about interest rate cuts. Designed to diversify risk. Recently, a significant increase in the correlation between ** and Bitcoin has been observed. Admittedly, Bitcoin's recent sharp increase in volatility also portends some short-term** risks.
Looking ahead, short-term uncertainty has risen. On the one hand, the recent U.S. data has once again entered the "observation period"; On the other hand, after a significant increase in the volatility of alternative assets, they may often face a certain amount of adjustment.
Volatility has risen significantly recently, but historically, volatility has struggled to stay high for long periods of time. The short-term gold price is not excluded**. At the same time, from a fundamental point of view, the insufficient seasonal adjustment of US data after the epidemic, the seasonal adjustment factors tend to push up growth and inflation in January and February, and the recent adjustment of the weight of US inflation indicators by BLS have brought some uncertainty to the trend of US macro data in the second quarter (see "US Retail Sales Growth Shows a Cooling Trend, Short-term Factors Exacerbate the January Decline", 2024 February 16;"U.S. Inflation** Postpones Interest Rate Cut Expectations, but Persistence Remains to Be Seen", 2023 2 14).
In the medium and long term, ** has excellent "anti-volatility" and good appreciation potential, and should occupy a "place" in asset allocation for a long time - maintain optimistic expectations for gold prices.
On the one hand, real interest rates in the United States may have some room to fall in the long run. Although the real interest rate is a very important concept, the market's pricing of the real interest rate of U.S. Treasury bonds is actually the "residual" of two "traded" ** - that is, the "residual" of the U.S. Treasury yield traded in the market minus the breakeven inflation expectation of tips. That's why Powell said that "you will feel it" if R* is high enough. This residual may reflect the real rate of return on investment, but in the short run it is also driven by factors such as risk premiums, term premiums, and even various short-term "premiums" have a greater impact on the so-called real interest rates.
However, while changes in the premiums in the short run may affect the level of the so-called residual real interest rate, in the long run, the equilibrium real interest rate must and can only be supported by the real return on investment. Before the pandemic (2014-2019), the equilibrium level of the 10-year real interest rate was 0Around 5%, it is still close to 2%. While the development of artificial intelligence may push up real ROI, it is difficult to imagine that real interest rates could be 2% higher than they were during the 2003-07 "** period" of globalization, given factors such as the slowdown in globalization and the sharp increase in global leverage during the pandemic (see Can Real Interest Rates in the U.S. Remain High for Long?).》，2023/8/24)。
On the other hand, in today's global geopolitical environment, the allocation value of alternative assets, including **, will be further highlighted. With the structural rise of global geopolitics and related financial risks, the demand for "diversification" of foreign exchange reserves will continue to support ***. At the same time, the hedging attribute of ** also means that in today's global macro environment, ** always occupies a "place" in asset allocation. * The structural rise in demand largely explains the resilience of gold prices against the backdrop of rising real interest rates. And these structural factors may not disappear for the foreseeable future. The Russian-Ukrainian war and the trend after the Palestinian-Israeli conflict have confirmed this. (See "Gold Price Performance Is Still Expected" 2023 12 4).
Risk Warning:
Geopolitical factors exceeded expectations, and the Fed was hawkish more than expected.