Text/Zhao Bin
"Golden Week" gold performance is outstanding.
Since October 1st, the price of gold has been rising continuously. After the the New York Mercantile Exchange gold futures price reached a record of 3,923.3 USD/oz on October 2nd, the London gold futures price also reached a record of 3,896.6 USD/oz on October 2nd, and then it was adjusted back.
Domestic gold prices also performed well. China Gold Investment Gold Bar reported 907 yuan/gram, and Shanghai Gold Exchange reported 874 yuan/gram. The prices of gold jewelry of many domestic gold jewelry brands have remained at a high level without obvious fluctuation. Zhou Shengsheng, Lukfook Jewelry and Golden Supreme all quoted 1129 yuan/gram.
However, when institutions, experts and market sentiment at home and abroad are bullish on the price of gold, some merchants who sell gold ornaments, as people who deal with gold every day, are quite cautious and dare not hoard gold easily.
Behind the skyrocketing gold in the "Golden Week"
The role of structural factors such as the Fed’s interest rate cuts and geopolitical risks on the gold price has been released for many days. Why did this "Golden Week" gold suddenly surge?
Wang Hongying, president of China (Hongkong) Financial Derivatives Investment Research Institute, said in an interview with China News Service, China Express that the direct cause of this wave of rise in the gold market is that global gold market investment professionals predict that the probability of further interest rate cut by the Federal Reserve in October will exceed 90%. The Fed’s decision to cut interest rates is undoubtedly the key "catalyst" to push up the price of gold. It is widely expected that the Federal Reserve will cut interest rates once or twice this year, which has greatly promoted the continuous rise of gold prices. The effects of these factors on the rise of gold prices are still being released, which is one of the reasons why the market generally sees more gold prices.
In addition to the Fed’s expectation of interest rate cuts, the continuous escalation of geopolitical conflicts has also added fire to the rise in gold prices. The suspension of the US government has damaged credit and intensified the risk aversion of the market. At the same time, the US government announced that it would allow the export of long-range missiles with a range of more than 1,000 kilometers to Ukraine, which further aggravated the geopolitical conflict. Israel’s interception of international aid organizations to Gaza at sea also directly contributed to the sharp rise in the price of gold.
In addition, Europe suddenly announced a 50% tariff on imported steel, indicating that Europe officially opened a geopolitical and military game, which led to a rapid rise in gold risk aversion in the short term.
Zhao Qingming, vice president of Huiguan Information Research Institute, pointed out in an interview with China News Service that the main reason for the current increase in gold prices lies in the bullish atmosphere formed by bullish sentiment in the market. Judging from the past, it is difficult to explain the rise of gold price in the last two years with the pricing model formed in the past. There is a consistent trend of bullish and bullish gold in the market, which drives the price of gold to keep rising and hit a new high.
When emotions become one of the factors that push up the price of gold, there is a possibility of "pass the parcel" in the capital invested in the gold market, and the cash withdrawn from the gold market by the profit-makers must be contributed by the loss-making investors.
Geopolitics and monetary policy are "double-edged swords"
Although the gold market is currently bullish, the downside risk cannot be ignored.
Wang Hongying believes that, at present, there are not too many driving forces leading to the decline of gold, and the short-term pullback caused by profit settlement and selling will still occur with high probability. Specifically, the easing of international geopolitical and military conflicts may lead to the departure of safe-haven funds, or the Federal Reserve’s failure to cut interest rates further in view of the current job market and inflation level may trigger a gold price correction.
Since February 2022, geopolitical risk has been the most important factor driving the rise of gold prices. Judging from the current media reports, there is a great possibility that the situation in the Middle East and the Ukrainian crisis will lead to peace and geopolitical risks will drop significantly. Once geopolitical risks cool down significantly, the price of gold may fall by thousands of dollars.
In addition, although the weakening of the US dollar is good for the gold price at present, the reversal of the trend of the US dollar as a global reserve currency may also have a major impact on the gold price. Investors need to be alert to the risk of profit-taking by bulls, and rational investment is the long-term way.
Long-term bullish and short-term volatility coexist in the future.
There are different views on the future trend of gold, but the long-term bullish voice dominates.
Wang Hongying believes that under the background of the Federal Reserve’s interest rate cut cycle, in theory, there is still a long overall rise time for gold in the future. From a technical point of view, the price of gold has broken through the historical key pressure level and is oscillating upward towards the technical rising position of 4000 US dollars per ounce. Although the possibility of a short-term decline cannot be ruled out, it is likely to maintain an upward posture for a long time to come.
UBS released a report saying that the gold market tends to be bullish at present, and it is expected that the price of gold will rise to $4,200 per ounce by mid-2026.
Xu Ying, chief analyst of macro strategy of Dongzheng Derivatives Research Institute, also said that the Fed cut interest rates again in September, which started the second half of the interest rate cut cycle. The market expects that there will still be two interest rate cuts in the fourth quarter, which will lead to the rising prices of assets such as gold.
However, short-term fluctuations cannot be ignored. Pan Helin, a member of the Committee of Experts on Information and Communication Economy of the Ministry of Industry and Information Technology, expressed his concern about the fall of gold prices when interviewed by China News Service.
He believes that the price of gold is currently at a high level, and does not rule out the risk of falling back in the short term. Historically, the gold bull market appeared in stages, but every time it surged, there were certain restrictions. Even if there is a saying that the bull market is hard to say, it remains to be seen how high this wave is.
Interestingly, in this wave of rising gold prices, some merchants selling gold ornaments are quite cautious. During the National Day holiday, media reporters visited Shenzhen Shuibei Market and several brand gold ornaments stores and found that although the price of gold continued to rise, merchants did not dare to hoard gold easily.
"When the price of gold is high, we dare not prepare too much, because the higher the price, the higher the risk of inventory (the price of gold falls)." Manager Chen of a gold jewelry store in Shuibei Market said, "We are now adopting the strategy of’ buy back as much as we sell’. As long as there is profit, we will buy gold materials to keep our position and will not easily increase our inventory."
Steady investment to avoid blindly following suit
As a gold jewelry merchant who deals with gold the most, why do you hold such a cautious attitude towards gold when all walks of life once saw more gold?
Among them, there is not only the general cognition that "the higher the price, the greater the risk", but also the consideration of operational safety.
Wu Fei, the major shareholder of a gold shop in Jinan, Shandong Province, said in an interview with China News Service that he is also adding positions when investing in gold from a personal point of view, but as a gold shop operator, he considers the profit rate and cash flow in the long run, not the benefits brought by the premium. Therefore, the skyrocketing gold price has brought greater financial pressure to the operation of gold shops, and they are also more cautious.
Therefore, Zhao Qingming said that based on the function of gold itself and its own situation, it is judged whether to invest in gold and how to allocate it. Gold, like stocks and bonds, is a very important part of asset allocation. Of course, if gold is the main investment object, this is different from asset allocation. At present, as we can see that the price of gold may rise to 3900-4000 USD, especially when there is a pullback, it is not necessary to enter the market at present, but we must set a stop loss and participate in investing in gold within our personal tolerance.
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