In mid-to-late September, with the Federal Reserve's interest rate cuts, international gold prices frequently rose, but they repeatedly encountered obstacles.
Gold has been rising sharply for a long time, will it continue to rise in the future? Wall Street remains unanimously bullish.
Is the impetus peaking? //
At present, there are two mainstream logical frameworks in the gold market: the traditional real interest rate logic and the de-dollarization logic. (Influencing factors such as geopolitical risks and central bank gold purchases are also within these two frameworks)
Traditional real interest rate logic:
On 18 September, after the Fed announced an interest rate cut, the US dollar's deposit rate fell, increasing the relative attractiveness of holding gold. Investors may be more inclined to allocate their capital to gold, which will drive up demand for gold and prices higher. From this logic, as long as the Fed does not cut interest rates and real interest rates continue to fall, it will continue to push international gold prices up.
There is another small logic hidden in this, the Fed continues to cut interest rates, which may also bring certain inflationary pressures. Rising inflation expectations also contributed to the rise in gold prices.
Hong Hao, chief economist of Sirui, pointed out in July this year that the most obvious investment opportunity lies in the rising opportunity of precious metals due to the continuous decline in interest rates at this stage.
De-dollarization logic:
United States' federal government debt is so large that it now exceeds $35 trillion and is rapidly climbing at a rate of $1 trillion every 100 days.
In fiscal year 2023, United States' fiscal revenue will be about $4.4 trillion, fiscal spending will be about $6.1 trillion, fiscal deficit will be $1.7 trillion, and interest payments on United States government bonds will be as high as $659 billion.
In other words, interest expenses will already account for 15% of fiscal revenue in 2023; 38.7% of the fiscal deficit that year.
The United States Congressional Budget Office (CBO) Budget and Economic Outlook: 2024 to 2034, released in February 2024, projected interest expenses to grow rapidly over the next 10 years — from $951 billion in 2025 to $1.6 trillion in 2034.
Wall Street is almost unanimously bullish //
Wall Street has hardly any controversy about the gold bull market, except for the high and low price targets for gold.
Some analysts believe that gold has significant upside for the foreseeable future, and may even reach very high price levels. Wall Street financial analyst John Rubino, for example, had predicted that gold would rise to $5,000 to $10,000 an ounce. He believes that there are problems in the current global financial system, and gold will perform well as a safe-haven asset and store of value in this context. And with the addition of new use cases such as the Space Race, the demand for gold in the industrial sector is likely to increase, further driving prices higher.
Michael Hartnett, a United States strategist who is "Wall Street's most accurate analyst of US stocks," has suggested buying gold at new highs. Because the Fed's rate cuts in the coming months could trigger a rebound in inflation next year, while real assets such as gold have performed well in inflationary times.
UBS analyst Giovanni Staunovo expects gold to reach $2,600 an ounce by the end of 2024. Goldman Sachs analysts predict that gold prices may rise to $2,700 an ounce by 2025, based on expectations of the Fed's interest rate cuts. Citibank believes that the gold price will reach US$3,000/oz in mid-2025, while forecasting an average gold price of US$2,550/oz in the fourth quarter of 2024.
There is also a basis for the callback argument //
Despite the strong logic of the driving force of the gold bull market, Wall Street is unanimously bullish. However, gold is still quite weak at an important juncture.
On September 18, after the Federal Reserve announced an interest rate cut, the international gold price first rushed up rapidly, and then fell sharply, leaving a long upper shadow candlestick at a historical high on the same day, showing that investors are not confident in going long, and there is a decline of "good out".
Since 2024, the international gold price has shown a significant upward trend. By the end of August 2024, the international gold price had risen from US$2,000 per ounce to more than US$2,530 per ounce, an increase of 26.5%. In the face of considerable gains, it is reasonable for some investors to choose to take profits.
Gold has entered a new phase //
To be clear, the Fed's rate cut on September 18 ushered in a new phase of the gold bull market.
That is, from the previous expected decline in interest rates, to the actual downward channel period after that. Historically, cycles of interest rate cuts have tended to drive a new rally in gold prices.
It should be noted that the rise in gold prices triggered by the interest rate cut cycle pays more attention to the magnitude of each interest rate cut, the frequency of interest rate cuts, and the overall room for interest rate cuts. Gold prices could see a brief decline if the market expects the Fed to cut interest rates aggressively to stimulate the economy, but the actual rate cut is not as large as expected.
The logic of de-dollarization, as mentioned above, focuses more on factors such as United States economic growth, debt increases, and central bank purchases.
Some people are happy and some are worried about the gold bull market //
The rise in international gold prices has also deeply affected the upstream and downstream industrial chains.
In the second quarter of 2024, 10 of the 12 A-share gold mining companies saw their performance increase in the first half of the year, with many of them hitting new highs since their listings. For example, Shandong Gold: In the first half of 2024, the operating income will be 45.773 billion yuan, a year-on-year increase of 66.90%; the net profit attributable to the parent company was 1.383 billion yuan, a year-on-year increase of 57.24%; Chifeng Gold: In the first half of 2024, the total operating income will be 4.196 billion yuan, a year-on-year increase of 24.45%; the net profit attributable to the parent company was 710 million yuan, a year-on-year increase of 127.75%;
The performance of gold mining companies has increased, but gold and jewelry companies have suffered a significant decline - the rise in gold prices has affected residents' gold consumption!
Chow Tai Fook: In the second quarter of 2024, the company's overall retail sales decreased by 20% year-on-year, same-store sales in Chinese mainland decreased by 26.4%, and same-store sales in Hong Kong and Macau decreased by 30.8%.
Chow Sang Sang: In the first half of 2024, the turnover decreased by 13% year-on-year to HK$11.313 billion, and the profit attributable to owners of the company was HK$526 million, a year-on-year decrease of 36%.
From a consumer demand perspective, this is also a headwind for the gold bull market.
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