Will gold prices continue to soar despite repeatedly reaching new highs

On March 13th local time, Deutsche Bank released a report stating that the two volatility indicators of the gold market - China's SGE premium and spot premium relative to fair value premium - may have reached their peak, indicating that gold will experience a period of volatility in the future, providing investors with opportunities for range trading.

Since March this year, international gold prices have continued to soar. On March 8th, the spot gold price in London briefly rose to $2195.07 per ounce, and COMEX gold futures reached a record high of $2203 per ounce, both reaching historic highs.

A comprehensive analysis of the reasons for the sharp rise in gold prices mainly includes the following aspects.

Firstly, there is a global warming of expectations for the Federal Reserve's interest rate cuts and the Eurozone's interest rate cuts. As US inflation falls from its peak, the market generally believes that the Federal Reserve's interest rate hike cycle may have ended and will soon shift towards a rate cut channel.

Secondly, the intensification of geopolitical conflicts has led to an increase in public risk aversion. According to publicly reported data from the media, there have only been four instances in history where gold prices have reached new highs for six consecutive days, similar to the current situation. It appeared after the outbreak of the oil crisis in 1973. When the 2008 financial crisis accelerated and worsened, gold prices even rose for 7 consecutive days. The above examples indicate that geopolitical and economic crises often lead to a surge in gold prices.

On October 7, 2023, after Hamas launched an attack on Israel, gold prices first rose and then fell. After the outbreak of the Russo Ukrainian war, many investors were originally only prepared to deal with limited bilateral conflicts, but this conflict lasted until March this year and there were still no signs of a ceasefire. At the same time, the armed forces of the Hussein organization are still attacking ships on the Red Sea, which has led the global public to anticipate that this war will continue for a longer period of time, and therefore are taking refuge measures.

The global gold consumption boom, especially the gold boom in Asia, is also one of the important reasons, as the growth in gold demand has helped prices continue to rise. With the growth of the global economy and the expansion of population, the demand for gold is gradually increasing. Especially in emerging market countries, the demand for gold continues to grow. At the same time, the widespread application of gold in industry and technology also provides support for its demand.

Nitesh Shah, the head of raw material market and macro market research at the American investment company Wisdom Tree, believes that the important reason for the recent increase in gold prices is the increasing demand for physical gold from consumers. The import volume of gold in Asia is currently at a historic high, and other central banks in many countries are also purchasing gold in large amounts that have not been seen in two years.

In addition, the game in the futures market is also one of the reasons that cannot be ignored. John Reed, Chief Market Strategist of the World Gold Council, believes that the direct cause of the surge in gold prices in early March should be sought in the US futures market.

The open interest contracts in gold futures on the New York Mercantile Exchange have increased by approximately 80000 units in the past week, with a trading volume equivalent to approximately 240 tons of gold. "If open contracts and gold prices rise rapidly simultaneously, it indicates that the New York Mercantile Exchange has created new speculative long positions." This means that traders are betting on the rise in gold prices.

In summary, the significant rise in gold prices is due to the combined effect of multiple factors. In the medium and long term, there is still potential for upward movement, but it may face fluctuations and pullbacks in the short term.

From the current situation, besides Deutsche Bank, CITIC Securities is also not optimistic about the future of gold. CITIC Securities believes that the biggest positive marginal factor for the significant short-term upward trend of gold is the volatility of the geopolitical situation, which favors safe haven assets. However, this bullish trend still exists in the future, but to a limited extent, may not be as strong as in the past two weeks.

From historical experience, generally speaking, the continuous decline in gold prices indicates a positive trend in economic development, and investment and entrepreneurship are easy to make money. On the contrary, if the price of gold continues to rise, it largely indicates that other investment channels are not ideal.

For global investors, we should closely monitor changes in the global economic situation and adjustments in monetary policy, pay close attention to the evolution trend of geopolitical risks, timely understand market dynamics, and adjust investment strategies accordingly in order to stand invincible.