A、 When the sovereign credit of the US dollar is damaged, it is often a gold bull market
The interest rate is the price of funds. The rising interest rate indicates that the price of funds is on the rise. Holding monetary assets can obtain income in the form of loans, while gold is an interest free asset, which is not conducive to gold. When the dollar index goes up, it tends to go down with gold denominated in dollars; And empirically, gold and interest rates were also negatively correlated in the past. But this year, these two laws were broken. We believe that this framework has a cyclical thinking. In 1988-2000, US bond yields and gold prices were in a downward trend. It seems that the "traditional framework" is also invalid.
Long term indicators of gold need to observe dollar credit. The dollar credit is reflected in the government's solvency. When the government relies on the mode of borrowing to stimulate the economy, the dollar credit may be tested by the market. In the 1990s, the US fiscal deficit was tight, and it was not until 2001 that the fiscal deficit began to expand. During this period, the gold price was weak.
When the US fiscal deficit begins to increase, it is often the starting point of the gold bull market. Fiscal expansion since the 21st century has been divided into three waves: 2001-2004, 2008-2009, and 2016 to date. In addition, due to the high interest rate, the current burden of interest expenditure on the federal government is high, which also increases the concern of investors. When the US fiscal deficit starts to increase, it often corresponds to the starting point of the gold bull market.
The high linkage between gold and Bitcoin may reflect the damage to the credit of sovereign currencies. Gold and Bitcoin have a high correlation in this round. The common point of both is that they have a low industrial use.
Based on the traditional pricing system, we superimpose the US dollar credit framework to build a scoring system. The US debt, US dollar index (traditional framework), fiscal deficit, de dollarization (US dollar credit) and other four indicators are combined into one indicator as a scoring system for gold. After 2004, most of the time is long signals, except from July 2014 to 2018, during which only a few time points are long signals.
B、 Comparison of gold from the perspective of multiple assets (copper and oil)
1、 Crude oil is of strategic significance. When gold oil correlation rises and resonance occurs, the reason may be the frequent occurrence of geopolitics. Crude oil is the blood of industry. It is not only an energy source, but also the support of modern industry. When global geography is tight, crude oil prices tend to rise. The geopolitical threat index in 2024 is still at a phased high, which can also explain the upward trend of gold and oil correlation to some extent.
Gold and oil were relatively synchronized before 2002-2012, but in recent years, the trend has diverged, oil prices have peaked, and gold has kept hitting new highs. Therefore, the center of gold oil ratio has risen.
2、 The financial cycle leads the economic cycle, and the upward turning point of gold is earlier than that of copper. Unlike crude oil, which has certain energy consumption attributes, copper is an industrial metal, so its consumption has a certain correlation with the global manufacturing cycle. Historically, the trend of copper is stronger than that of oil. The ratio of copper to gold has fluctuated within a range since 2010, and the correlation between copper and gold is also stronger than that between copper and oil.
C、 Golden timing framework
From the above analysis, we can judge that the bottom of the gold price may be supported by costs, but the top price is difficult to predict. Therefore, we tend to judge the state of gold in combination with the deduction of relevant major categories of assets. (1) From the perspective of medium-term trend indicators, the upward inflection point is that gold leads copper, and copper is close to oil, but the top inflection point is inconsistent. At present, gold continues to rise from the bottom in October 2022, leading copper and oil. (2) Due to the abnormal fluctuation of the gold oil ratio in recession, the gold copper ratio is more effective in judging the top than the gold oil ratio. At present, both the gold copper ratio and the gold oil ratio are above 60% of the quantile since 2010. In addition, when the correlation between gold and oil rises from low to high, there may be some adjustment risk for gold.
Risk tip: historical experience will not be simply repeated. The US economy has strong endogenous momentum and the global economy has a strong recovery
