Rise! Rise! Rise! The biggest weekly increase in two years, the price of gold is approaching $2,000! Why do global central banks frequently buy?

The international gold price is approaching the $2,000 mark, just one step away from the historical high of two years ago.

This week, the rise in risk aversion has led to a sharp rise in safe-haven assets such as precious metals. New York gold futures rose about 5.7% in a week, the largest weekly gain since April 2020, while silver futures rose 10.41% in a week.

As some banks in the United States and Europe have fallen into crisis one after another, the Federal Reserve's interest rate hike expectations have reversed significantly, the Federal Reserve's policy is dwarfed, the credit of the US dollar is facing a test, and the central banks of various countries still have huge room to buy gold backed by natural credit. And under the global stagflation-like cycle, the price of gold will usher in a long-term bull market.

Approaching $2,000! The international gold price recorded its largest weekly increase in nearly two years

On March 18, Li Xunlei, chief economist of Zhongtai Securities, lamented on social media: The situation in the European and American economies has evolved to a situation where the Federal Reserve will cut interest rates and gold will rise, and interest rates will also rise, and it is close to the historical high.

The rise in risk aversion has sent safe-haven assets such as precious metals sharply higher amid the Federal Reserve's massive bailout of the US banking sector. Gold futures in New York rose about 5.7% in a week, their biggest weekly gain since April 2020, while silver futures rose 10.41% in a week.

Data show that this Friday, the New York Mercantile Exchange (COMEX) gold futures market for April delivery of gold futures prices rose $70.7, or 3.68%, to close at $1,93.7 an ounce, from the record high of $2,089 in August 2020, just a step away. The New York Mercantile Exchange silver futures market for May delivery of silver futures prices quoted at $22.75 an ounce, the highest level since February 3, an increase of 4.88% in the day, a weekly price increase of 10.41%.

Domestic gold futures prices also rose simultaneously. On March 18, the main 2306 contract of domestic gold futures closed at 443.12 yuan per gram, less than 10 yuan from the historical high of 454.08 yuan per gram in August 2020, up nearly 6% in a single week. In terms of silver prices, the main 2306 contract of domestic silver futures closed at 5,174 yuan per kilogram, up 3.05%.

Driven by the rise in gold prices, since March, market funds have significantly increased their investment enthusiasm in the gold sector, and gold concept stocks have been active. Among them, Sichuan Gold rose 61.09% in a single week, and the cumulative largest increase in half a month was more than 200%; Zhongrun Resources (000506) harvested four consecutive boards, rising 47.44% in a single week.

Since March, the share of gold ETF funds has risen, and fund products with heavy positions in gold stocks have also performed well. According to Wind data, as of March 16, gold ETFs have risen by more than 4% since March; among them, the share of large-scale gold ETFs has risen significantly. Huaan Gold ETF (518880) has increased by about 150 million since March, and the average daily turnover exceeds 700 million yuan.

Dollar credit is facing collapse, and global central banks are buying gold aggressively

The dollar index and the price of gold are usually negatively correlated, but when risk aversion heats up, the two move in the same direction. However, some banks in the United States and Europe have fallen into crisis one after another, the Federal Reserve policy is dwarfed, the credit of the dollar is facing a test, and central banks around the world still have huge room to buy gold backed by natural credit.

According to the World Gold Council's "World Gold Demand Trends" report, global central banks added a net 1136 tons of gold in 2022, a sharp increase of 152.31% year-on-year and a record high. Not only is it 13 consecutive years of net increases, but it is also a historical record since data became available after 1950. Previously, in 2021, the number of global central bank purchases increased by 77% year-on-year.

The latest adjustment data from the World Gold Council this year shows that the scale of central bank buying in 2023 is further enlarged. The data on the net purchase of gold by global central banks in January was raised from 31 tons to 77 tons, indicating that the enthusiasm of countries around the world to buy gold is still high in the context of high geopolitical uncertainty. The final January data was up 192% from December last year.

In addition, according to the data of the People's Bank of China, at the end of February this year, China's official reserve assets held 65.92 million ounces of gold, equivalent to about 2,050 tons, an increase of 1.23%, about 25 tons of gold purchases, 4 consecutive months of gold holdings. Previously, in November last year broke the history of not increasing gold holdings for nearly three years, gold reserves increased by 32 tons, and gold reserves increased by 30 tons in December last year. In January this year, about 15 tons of gold were added.

At a time when central banks are buying heavily, the number of precious metals inventories on the exchange side has declined significantly. According to statistics from Minsheng Securities, since February 2022, gold and silver inventories on the New York Mercantile Exchange (COMEX) have fallen by 32% and 17% respectively.

Gold prices rose significantly under the global stagflation cycle

"Some banks in the US and Europe have fallen into crisis one after another, and the Federal Reserve's interest rate hike expectations have reversed significantly." Wang Jiechao, a researcher at CITIC Jiantou (601066) securities joint stock company, believes that the Federal Reserve has fallen into a dilemma of reducing inflation and preventing risks. The space for the US to achieve a "soft landing" is getting narrower and narrower, which is nothing more than the time and degree of the recession.

Wang Jiechao said that once the interest rate cut is started, the high potential of the actual interest rate will be turned into the action energy of the gold price. In the process of rising gold prices, the gold sector and related leading targets have significantly outperformed the broader market indexes such as the CSI 300. It is expected that with the slowdown of the Federal Reserve's interest rate hike, the gold price center is expected to gradually rise. It is recommended to grasp the rhythm and focus on the layout of bargains. However, in the short term, it should be noted that if the liquidity risk spreads significantly (taking the TED spread rising above 1% as a consideration, the TED spread = the London interbank market interest rate in March - the US Treasury bond rate in March), the gold price may follow other asset prices for a short

Minsheng Securities Research Report believes that the world is in a stagflation-like cycle, and gold prices will usher in a long-term bull market. The current global economy is in a historical level of currency over-issuance cycle, and it is expected that the flood of currency credit will form a long-term transmission to inflation. With the marginal improvement in demand, inflation may exceed expectations, forming stagflation.