How much will the price of gold continue to surge? Why is the price of gold continuing to soar?

How much will the price of gold continue to surge? Why is the price of gold continuing to soar? Gold ETF holdings hit a new record high

Market data showed that spot gold prices rose again in early Asian trading on Thursday, hitting a high of $1,876 an ounce, the highest since September 2011, and now less than $50 away from the historical high of $1,921.

Even more enthusiastic buying demand appeared in the futures market. The New York COMEX gold futures price for June 2021 has now surpassed the historical highest level of spot gold in the past, rising to US$1,923 at the beginning of the day.

ANZ analyst Daniel Hynes said that under various stimulus projects around the world, investors have chosen safe-haven assets such as gold. “Interest rates are expected to remain low for a long time, and the weak performance of the U.S. dollar has also driven investors toward gold.”

Edward Moya, senior market analyst at OANDA, said: "Gold prices are accelerating their climb on Wednesday, mainly due to geopolitical tensions. There seems to be no end in sight to this escalation of tensions...As the world's two largest countries continue to trade verbal attacks, market risk appetite has been hit."

Global gold ETF holdings hit a new record high

Data shows that as of July 21, 2020, the total holdings of the world's eight major gold ETFs were 1,993.693 tons, an increase of 8.48 tons from the previous trading day, and the holdings continued to hit historical highs. Citigroup's head of commodities, Morse, said this week that investing in gold ETFs is the best way to generate returns right now.
A report from Morgan Stanley Wealth Management pointed out that since March, the U.S. break-even inflation rate has risen sharply, which is different from the previous round of gold bull market in 2011, when the break-even inflation rate remained stable or declined. Instead, it suggests that "deglobalization, a depreciating dollar, demographic changes, debt monetization, and the lack of consumer deleveraging are now likely to drive inflation expectations. All of this looks good for gold."

Although gold itself does not generate any income, as inflation expectations rise and real bond yields remain low or even negative, the attractiveness of gold increases. When it comes to hedging risks, gold may be a better choice than U.S. Treasuries. Falling nominal and real bond yields are typically positive for gold because they reduce the opportunity cost of holding the metal. As of last week, New York gold futures rose for the sixth consecutive week. Record inflows into gold ETFs further highlight its hedging role.

James O'Rourke, an economist at Capital Economics, said that as economic uncertainty eases, demand for safe-haven assets such as gold should weaken, but real interest rates are particularly low, which is the main reason for the rise in gold prices. The greater the uncertainty about the impact of the prevention and control of the new coronavirus epidemic on the global economy, the more gold prices will rise.

The agency expects gold prices to trade around $1,900 an ounce by the end of this year, well above its previous target of $1,600 an ounce. Gold is bullish in the market as real interest rates continue to fall and inflation expectations rise. In addition to lower bond yields, Capital Economics also expects a weaker U.S. dollar in the second half of 2020, which will also provide another boost to gold.

It is worth mentioning that the recent crazy rise in gold and silver prices has also sparked heated discussions among domestic investors. Yesterday, the rise in gold and silver prices even became a hot search on Weibo. The Shanghai Gold Exchange also adjusted the relevant transaction margin ratio accordingly.