Zhong Wei / Wen
With the recent rise in gold prices, gold investment is particularly eye-catching. For many years, the author has been looking for theoretical works on gold pricing. But disappointingly, no clear and credible book has been found to explain the reasons and cycles of gold's rise and fall.
In 1900, the Global Gold Conference established the international gold standard, which has a history of more than 120 years. It has been more than 50 years since the Bretton Woods system collapsed, while London Gold has reformed its gold pricing mechanism for less than 10 years because of suspicion of quotation operation. As a result, the impact of the gold standard is not far away, and public trust in creditworthy currencies such as the US dollar and the euro appears relatively fragile.
From the perspective of Chinese history, the monetary status of gold is not prominent. China has used the copper-silver composite standard system for a long time, and it is mainly copper, so the word "copper coin" has been widely spread. at the same time, there are many lax and inconsistent official seigniorage standards in previous dynasties. Today, however, China has a considerable amount of gold. For more than a decade, China has been the world's largest gold producer. Since 2009, China's annual gold output has remained at more than 300 tons, even more than 400 tons in some years, of which some of the domestic gold has been collected and stored. Residents also have a natural preference for gold. In recent years, the average annual consumption of gold in China has been maintained at about 1000 tons, and the source of gold also includes imports. The author roughly estimates that the stock of gold owned by China's public sector and residential sector may each exceed 10,000 tons. This is not excessive compared with the size of China's economy, state-owned financial assets and household savings.
Of course, the gold reserves officially declared by the people's Bank of China are not large, which stood at 72.74 million ounces, or more than 2000 tons, at the end of March 2024. This is not large compared with the more than 8000 tons of gold reserves in the United States, and even compared with the gold reserves of European countries such as Germany, France and Italy. Considering that the renminbi accounts for less than 3 per cent of international reserve assets and the obvious hegemonic system of the international financial order, the PBoC has been buying net in the international gold market for two years. Given the fragmentation of international governance and the frequent occurrence of regional conflicts, the PBoC is likely to maintain its net gold buying strategy. At the same time, more and more central banks around the world have begun to increase their gold reserves.
Why the price of gold has risen recentlyJackpotwheelcasino? Opinions vary, but most of the explanations are quite dubious. Some people say that they are worried about the heavy debt of Western countries, but the debt accumulation was not built in a day. Why does the price of gold not respond continuously to the debt accumulation? Others attribute it to the conflict between Russia and Ukraine or the conflict between Kazakhstan and Israel, which also raises questions: why does the price of gold not fluctuate immediately with events, but a lagging response? Others say it is the result of a surge in Chinese residents' defensive demand for savings, which exaggerates the impact of Chinese consumption on gold prices. From the author's point of view, at present, the vast majority of explanations are only given after the rise of gold, which can not stand deliberation.
From the author's point of view, the rise in the price of gold stems from changes in the number of dollars and interest rates. The dollar still plays a dominant role in the international monetary system and has been at its peak over the past decade. American economists Triffin and McKinnon have studied the dollar and gold carefully. McKinnon pointed out that as the basic factor of the world currency issuance, the excessive issuance of the US dollar will eventually lead to the global multi-faceted transmission of inflation. Since the outbreak of the subprime crisis, the Fed's assets have nearly quadrupled (from less than $1 trillion to nearly $4 trillion); since the outbreak, the Fed's assets have nearly doubled (it now stands at about $8 trillion). In the autumn of 2022, people mistakenly thought that the United States would enter a stagnant recession in 2023. In the autumn of 2023, people once again mistakenly believed that the Fed would start a cycle of interest rate cuts in March 2024. In fact, US employment and consumption data are so strong that there may be no window for interest rate cuts this year.JackpotwheelcasinoWe may be in the early stages of a "menu rewriting" in which monetary and credit expansion has initiated a series of changes. This change is like updating the menu in a restaurant, recalibrating the prices of various dishes and drinks, in different order and magnitude. The author observes the commodities such as silver, copper, nickel and crude oil on the market, and seems to be going through this process of price adjustment step by step.
Another factor is the enthusiasm of the international community for the dollar "spare tire". The international pattern is evolving, and the United States seems to be looking for a "spare tire" other than made in China, which is called "de-risk". At the same time, a considerable number of economies are preparing risk plans for obvious dollar hegemony and financial sanctions, looking for safe and credible "spares" outside dollar assets, a factor that may lead to additional demand for bitcoin and gold.
If the logic of gold is affected by the above-mentioned primary and secondary factors, where might the price of gold go? Compared with before and after the subprime crisis, Fed assets have increased by nearly 4 times, while gold has risen slightly less than 4 times; since the epidemic, Fed assets have doubled, so at pre-epidemic prices, the current upward trend in gold prices is still preliminary. Not only that, the more sticky US inflation is, the more sustained the menu rewriting that covers commodities such as gold, non-ferrous metals and energy. This will restrict the trend of the US stock market and bond market.
Many domestic residents have joined the ranks of gold purchases, the author believes that it is necessary to maintain a calm state of mind. Looking back from the late 1980s to the early 1990s, gold ornaments in state-run shopping malls sold for about 80 yuan per gram. At that time, the monthly income of the average worker was less than 40 yuan, but now it has increased to about 4,000 or 5,000 yuan. This means that the monthly salary of that year can only be purchased about 0%.Jackpotwheelcasino.5 grams of gold, while today you can buy about 8 grams of gold. In the long run, the price cycle of gold is unpredictable. At present, in addition to jewelry gold, physical gold and bank contract gold, individual investors can choose to give priority to gold ETF, which has multiple bullish or bearish leverage and can avoid the risk of local currency exchange rate. Institutional investors can choose the beneficiary listed targets of gold production and circulation, or gold futures.
People's understanding of gold pricing and its cycle rate is still limited. For example, in the early days of the collapse of the Bretton Woods system, gold prices fell instead of rising. From the late 1970s to the early 1980s, the world economy experienced great stagflation and drastic changes occurred in Eastern Europe, but gold prices remained sluggish throughout the 1990s. Therefore, it is rare to see well-known investors keen on gold. Buffett's famous saying is that he would rather own farmland in Tennessee than gold. Human civilization relies on the spontaneous order and self-expansion of an open society. When people are pessimistic about cooperation and mutual trust, central bank discipline and the future destiny of society and economy, the risk-averse nature of gold will shine.
(The author is a professor at the Department of Finance at Beijing Normal University)