The price of gold on the roller coaster is still gold!

静观Finance

2024-05-27 18:17Published in Hebei Finance and Economics columnist

The price of gold on the roller coaster is still gold!

The price of gold has begun to ride a roller coaster again, stumbling and making people unpredictable.

As a globally recognized safe-haven asset and store of value, every fluctuation in the price of gold tugs at the nerves of the market.

Recently, the price of gold has been on a rollercoaster. Behind the scenes, there are complex economic, political and market psychological factors.

Let's start with the recent performance of gold prices.

Since the beginning of the year, the price of gold has experienced significant volatility. In March, the London spot price of gold (LG) rose rapidly, reaching a monthly increase of 9.28%. Heading into April, this rally continued into the early half of the month, followed by a 4.43% decline between April 22 and April 30. Although the overall increase narrowed to 2.34% in April, gold prices showed a volatile upward trend in early May, once refreshing the historical record to $2450.10 per ounce. However, gold prices fell for three consecutive days from 21 to 23 May, reflecting the extreme sensitivity of market sentiment. As of May 24, although there was a slight pullback, it remained at a high level overall.

So, what is the reason for the ups and downs of gold prices?

The core of the sharp volatility in gold prices lies in the strong divergence of market expectations for the future. On the one hand, the erratic performance of US economic data, especially the volatility of employment and economic growth indicators, has caused the market to waver in the Fed's interest rate cut expectations. The market originally expected the Fed to cut interest rates to stimulate the economy due to the weakness of the economy, but the actual economic data was mixed, causing the Fed to become more cautious and the rate cut window was repeatedly postponed. It is based on this expectation of interest rate cuts that gold bulls continue to push gold prices higher, but once the economic data improves, indicating that the likelihood of interest rate cuts is reduced, the bulls will quickly close their positions and take profits, triggering large price swings.

For example, the release of US PMI data on 23 May that exceeded expectations, the services and manufacturing sectors both showed strong growth, and the Fed minutes revealed that some officials were open to another rate hike if necessary, these hawkish signals directly put pressure on the gold market, putting pressure on gold prices.

What is the future of gold prices?

Despite the volatility of gold prices in the short term, its "long bull" trend has not changed from a long-term perspective. For example, according to media reports, Guotai Junan Research Report pointed out that although the Fed's interest rate cut expectations are wavering, the potential vulnerability of the U.S. economy and the uncertainty of the global economy, especially the frequent occurrence of geopolitical events, such as the conflict between Israel and the Gaza Strip and the Russia-Ukraine conflict, will increase the market's safe-haven demand, thereby supporting precious metal prices. In addition, as central banks have increased their gold reserves, it is a further indication of the official recognition of gold as a safe-haven asset.

In any case, gold is always one of the best places to invest in the long run.

The short-term volatility in gold prices reflects the market's immediate reaction to uncertainty about the economic outlook and central bank policy, as well as geopolitical risks. However, in the long run, the complex situation and ongoing uncertainty of the global economy, coupled with the characteristics of gold itself as a safe-haven asset, indicate that gold will remain high and volatile in the future, and even achieve new breakthroughs under certain circumstances.

The gold on the roller coaster is always gold, and nothing else is necessarily!

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