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Aug 20, 2020
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Gold has come back for another $2,000. What’s different this time?

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After a brief adjustment, gold bottomed out on August 12 and rebounded. On August 18, it broke through $2,000 per ounce again and returned to the upward trend. The wind market shows that the London spot gold market reached a maximum of US$2,015.65 per ounce and finally closed at US$2001.7 per ounce, an increase of 0.84%. It has rebounded 4.72% in just 5 trading days since the bottom, and the rebound momentum is strong.

The price of COMEX gold was even higher, reaching $2024.6 per ounce as high as it closed on the 18th with an increase of 0.58%. Since the bottom five trading days on August 12, it has rebounded 3.29%. Because the previous decline was slightly smaller, the rebound was also smaller than that of London spot gold. It can be seen that regardless of gold spot or futures, the $2,000 mark has been broken again. This time it may become a strong support level for gold, and a new round of rising may be ready again.

The weakness of the dollar has become an important driving force for the recent rebound in gold. Wind data shows that the lowest dollar index on August 18 has reached 92.123, the lowest in more than two years. Since August 12, the U.S. dollar index has fallen by 1.43% from the peak of this round, which is completely opposite to the bottoming of gold. It can be seen that there is a significant negative correlation between the two.

The situation of gold stocks this time is quite different from that in history. According to documents submitted to the SEC on Friday, Berkshire increased its position in Barrick Gold by US$562 million in the second quarter, making it the 11th largest shareholder of the gold company.

Considering that Buffett has been the most famous value investor for a long time and has always disliked cash gold, this is an unusual sign. Barrick Gold’s stock price soared by more than 64% this year, while spot gold rose nearly 30% during the same period, making it one of the best performing mainstream assets this year.

Secondly, the operating conditions of the precious metals industry are significantly better than in the previous cycle, with stronger balance sheets and healthier cash flows.

Standard Chartered Bank’s Manpreet Gill said to the media this week that the rise in gold prices is far from over. The reason for the recent fall in gold prices is the rise in bond yields. As long as the yield remains below 1%, this will not really change the long-term theme. Gold still has a great opportunity.

From a mid-to-long-term perspective, it is believed that gold still has an allocation value, and the current global economy is at the bottom, and the safe-haven value and anti-inflation value of gold may continue to be highlighted.

With reference to 2007-2011, during the period of high economic downward pressure, gold was favored by investors due to its safe-haven value, and the price continued to rise. In the subsequent economic recovery phase, gold has become a high-quality asset against inflation, outperforming the S&P 500. The current global inflation level is already at a relatively low level, and as the inflation level picks up, gold may usher in an allocation opportunity.

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