The strength of gold prices continues. Since the spot gold market hit a low point of 1046.4 US dollars per ounce at the end of 2015, it has entered an upward cycle. The current price increase has exceeded 80%. Especially in July, the price of gold has risen wildly.
Today, the Federal Reserve announced the latest interest rate resolution. After the interest rate resolution was released, the U.S. dollar index fluctuated down, reaching a minimum of 93.1678, which was a new low in more than two years since June 2018. The prices of spot gold and spot silver were shocking, and the highest price of spot gold was touched. At US$1974.9, it continued to hit a record high.
Why did the price of gold soar?
We all know that gold has obvious hedging financial properties. The following reasons have led to increased risk aversion and increased demand for gold.
(1) Increased political friction
Historical research shows that political factors have always been important factors affecting foreign exchange and commodity prices. Recently, frictions between the United States and the outside world have been increasing, and geopolitical risks have increased. The hedging properties of precious metals deserve attention.
(2) The raging epidemic caused gold to rise
The short-term rise in gold prices is also related to the unexpected spread of the new crown pneumonia epidemic around the world. In particular, the continuing deterioration of the U.S. epidemic has brought uncertainty to the U.S. and even the global economy, which has also boosted the demand for gold as a safe-haven asset.
Historically, during the outbreak of SARS in 2003 and influenza A in 2009, gold rose by 16% in more than a month. In 2009, H1N1 also caused gold to rise by 13%.
(3) Global central banks release water
Affected by the epidemic, the economies of various countries have suffered severe setbacks this year, and the central banks of various countries have once again started the flood irrigation mode.
As the country most severely affected by the new crown epidemic, U.S. Treasury Secretary Mnuchin said on Monday that he is considering investing another $1 trillion. He also stated on multiple occasions that the new stimulus plan is expected to be launched at the end of July. There is more money in the market, and gold has become the main winner of global central bank releases.
(4) The U.S. dollar index continues to fall
Generally speaking, the trend of gold has a seesaw effect with the dollar index. The U.S. dollar index has continued to fall in recent days, especially after the finalization of the EU plan, which drove the euro to rise sharply against the U.S. dollar, which caused the U.S. dollar index to fall rapidly and boosted the price of precious metals.
(5) Contract conversion
According to analysis, contract conversion is a major stimulus for rising gold prices. Last Thursday, the COMEX gold futures December contract surpassed the August contract and became the contract with the highest open interest, but the number of open positions in the August contract that will be delivered on July 29 is still huge.
(6) Higher inflation expectations
The direct reason for the rise in asset prices is that there is money to buy continuously. The reason why funds flow into the gold market is because of investors’ bullish thinking. But bullish gold usually means that the market has expectations of higher inflation.
After the 2008 financial crisis, in the face of sharp declines in global interest rates and large-scale economic stimulus policies in various countries, investors generally expected super inflation to be imminent.
According to the latest data released by the World Gold Council (WGC), as of the end of June, global gold ETFs have seen net inflows for 7 consecutive months, setting a historical record. Among them, the total amount of global gold ETFs increased by 104 tons (about 5.5 billion US dollars) in June, and the total holdings reached a record high of 3621 tons.