In the 14th century AD, Spain and Portugal launched a global navigation movement. Explorers crossed the oceans in search of new trade routes and wealth. Gold played an indispensable role in it. Gold played an important role in both financing expenditure and as an equivalent for exchanging goods.
In 1717, Britain entered the era of "gold standard"; In 1816, the British Parliament passed the Gold Standard Act, but until the establishment of the Bretton Woods system in 1944, the monetary status of gold continued to weaken, the United States rose strongly, and the world entered the era of the dollar as the main trading currency.
How to interpret the gold wave in the dollar cycle? Let's talk about the "gold wave in the dollar cycle".
Topic 1: Does gold have the property of maintaining and increasing value? How to reflect?
When Marx talked about the origin of money, he said: "Gold and silver are not money naturally, but money is gold and silver naturally." Although we have entered the era of credit money for a long time, we still subconsciously regard gold as a means of value measurement and storage. How about the ability of gold to maintain and increase its value?
for instance
1000 years ago, one liang of gold was about 38g, equivalent to ten loads of grain, which could provide the poorest poor residents with two and a half to three years of life; Today, the gram price of gold is about 450 yuan. In 2021, the minimum living allowance in rural areas will be 6000 yuan/year. One liang of gold is close to the cost of two and a half to three years' living for residents with minimum living allowance. The purchasing power of gold will not decline after 1000 years. This is also the uniqueness of gold.
Topic 2: What is the relationship between gold price and the trend of the US dollar?
Since gold trading is mainly denominated in dollars, investors often use dollars to measure the strength of gold prices. We often hear that there is a reverse relationship between the gold price and the US dollar trend, that is, the "seesaw" effect. Why is this so?
Suppose there are only three currencies in the world: the dollar, gold and other currencies (which can be euros and pounds sterling), We know the exchange rate of any two sides of this "triangle", and then we can calculate the exchange rate of the third side. Assuming that one unit of gold can exchange 100 other currencies, and one dollar can exchange one other currency, then one unit of gold can exchange 100 dollars. If the ability of the US dollar to exchange for other currencies weakens, then gold can exchange for more US dollars, which means that gold prices rise. We usually refer to the exchange rate between the US dollar and other currencies as the "US dollar index", which measures the exchange rate change of the US dollar against a basket of currencies.
The so-called seesaw refers to the fact that the gold price and the dollar index have shown an approximate "negative correlation" in history. However, it can be seen from the trend chart that the gold price is not completely negatively correlated with the dollar index, because the gold price is also affected by other factors, including Monetary policy, economic fundamentals and investors' risk aversion Therefore, it is often difficult to predict the gold price accurately.
Data source: Bloomberg, as of June 30, 2023. Past performance is for reference only and does not constitute a guarantee of future performance.
In retrospect, the gold price has experienced four significant upward cycles:
In the 1970s, anti inflation demand and economic recession expectations jointly pushed up the gold price; In the mid-1980s, the US dollar depreciated significantly. Interest rate cuts and relatively stable inflation expectations led to a rapid fall in real interest rate expectations and a rise in gold prices. At the beginning of the 21st century, after the global financial crisis, the real interest rate is expected to decline as a whole, bringing a 10-year bull market of gold. In recent years, geopolitical risks have occurred frequently, and the COVID-19 epidemic has opened epic monetary easing in the world. Inflation expectations rose under economic uncertainty and supply chain shocks, pushing the real interest rate to a negative range, and the gold price also reached a historical high.
Data source: Bloomberg, as of June 30, 2023. Past performance is for reference only and does not constitute a guarantee of future performance. Topic 3 What is the "dollar tide"?
The "dollar tide", as people often say, refers to The inflow and outflow of US dollars in the world form an objective law of economic activity. It mainly includes several stages:
At first, the Federal Reserve lowered interest rates and increased the money supply, and the dollar flowed around the world;
Then, driven by low interest rates and abundant US dollars, bubbles began to appear everywhere;
In order to curb inflation, the Federal Reserve began to raise interest rates and reduce money supply, and the dollar appreciated and returned to the United States;
Finally, countries are hit by high interest rates and the shortage of US dollars, resulting in the risk of collapse or financial crisis.
Developing countries are often more affected by the previous "dollar tide". Such a cyclical law reminds us that we should not only grasp the opportunities in the period of economic prosperity, but also guard against the risks in the period of depression.
Topic 4 Why have global central banks increased their holdings of gold in recent years?
Since 2022, the global central banks have accelerated the purchase of gold reserves, and the People's Bank of China has also significantly increased the purchase of gold assets. By the end of June this year, the gold holdings had reached 35.3 billion yuan.
Behind the increase in gold holdings by the central bank, represented by China, is the reduction of US debt holdings, So as to complete the transformation from the dollar external reserve strategy to the diversified external reserve strategy. While reducing the holdings of US dollar assets, it is necessary to find alternatives, and gold naturally becomes the best choice.
Data source: Bloomberg, as of May 31, 2023. Past performance is for reference only and does not constitute a guarantee of future performance.
For one thing, compared with other sovereign currencies, under the global macro background of frequent geopolitical frictions and weak fiscal discipline, the attribute of gold hard currency has been highlighted. Second, increasing gold holdings can also increase the credit of RMB and consolidate the position of RMB in international economy and trade. The gold buying behavior of global central banks is breaking the gold price trend dominated by the expectation of the US real interest rate in the past 20 years.
Some people may ask, what does the rise of gold price have to do with us?
In fact, the gold price reflects the evolution of commodity prices around the world. If the gold price rises, the prices of ores, crude oil, chemical raw materials and grain will rise simultaneously, and the big inflation will come. As a feature of this era, "de dollarization" will only be a long-term and irreversible trend. Gold in the "wave" will continue to play a key role in witnessing and balancing the uncertainty and changes of the world.
What about the future gold market?
Judging from the latest market expectations, the current round of interest rate increase cycle of the Federal Reserve has been completed, and it may enter the interest rate reduction cycle in the future. From the perspective of some eventuality factors, this year has also experienced the catalysis of many emergencies, including the events of the Bank of Silicon Valley in the United States in the first half of the year and some geopolitical conflicts in the second half of the year, which will catalyze the gold price.
In the future, as an asset with no political risk, strong crisis resistance and long-term value storage function, gold may still be favored by investors in the context of the current global economic downturn and geopolitical risks.
How to arrange the bullish gold plate?
Knock the blackboard!
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