Gold "in favor" again: central banks and large asset management institutions include gold in their reserve assets

Gold "in favor" again: central banks and large asset management institutions include gold in their reserve assets

In the face of the Bank of Japan's sudden adjustment of YCC monetary policy, Ghana announced the suspension of euro bond debt and other black swan events, gold safe-haven properties have once again won the favor of capital markets.

As of 18:00 on December 22, the main contract price of COMEX gold futures was hovering at $1,824.83 per ounce, rebounding more than $200 from the lowest point of $1,618.3 per ounce in early November.

A Wall Street hedge fund manager told reporters that the price of gold has rebounded sharply in the past month, on the one hand, thanks to the decline of the US dollar index, on the other hand, the frequent black swan events such as the recent FTX bankruptcy have further depressed the market risk appetite and attracted more funds into the gold market.

"More importantly, as financial marekts continue to decline as the risk of a global recession increases next year, more and more asset managers are adopting defensive investment strategies early to prepare for the rainy day," he pointed out.

The latest data released by the US Commodity Futures Trading Commission (CFTC) shows that in the week ended December 13, the net long position of COMEX gold futures options held by asset managers dominated by hedge funds increased by 1.8936 million ounces compared with the previous week.

One commodity futuresbrokerHe pointed out to reporters that another reason why gold has regained the favor of asset managers cannot be ignored is that the FTX bankruptcy has further deepened the vulnerability of the crypto-digital asset industry, causing many asset managers to redeem funds from crypto-digital assets and instead invest in gold as a safe haven.

"In addition, the economic downturn has exacerbated investment risks in the US equity and junk bond markets, and also caused some funds to leave the market and turn to gold," he believes.

Wang Lixin, CEO of the World Gold Council in China, said in an interview with this reporter that although the strong US dollar has made gold prices fall, in the medium and long term, gold can still provide relatively stable annualized returns, and the trend is relatively independent during the period of severe fluctuations in financial marekt, which may be the main reason for attracting many asset management institutions to hedge short-term market risks by allocating gold assets.

The commodity futures broker pointed out to reporters that it is expected that the pace of global asset management institutions to increase their holdings of gold will still accelerate in the future, but their investment logic is by no means to buy gold arbitrage in response to the depreciation of the US dollar, but to do a good job of asset diversification as soon as possible to deal with the black swan event of financial marekt next year.

Get rid of the "shackles" of a strong dollar

Despite high global inflation this year, gold, which has anti-inflation properties, has underperformed. During the period from March to November, COMEX gold futures prices fell from an all-time high of $2078.8/ounce to a minimum of $1,618/ounce.

Wang Lixin pointed out that this is mainly because the Federal Reserve's continued sharp interest rate hikes caused the dollar index to rise sharply, causing the price of gold denominated in dollars to decline accordingly.

However, as the Federal Reserve's signal to slow down interest rate hikes since November has caused the dollar index to rise and fall, gold prices have begun to return to their gains. As of 18:00 on December 22, COMEX gold futures prices have risen by more than 10% since November.

This has also attracted many investment institutions to re-evaluate the allocation value of gold. On the one hand, after getting rid of the constraints of a strong dollar, the market generally believes that the price of gold has not fully reflected the decline in market risk appetite and concerns about future economic recessions, so there is some room for gold prices to recover. On the other hand, for global investment institutions that allocate different currencies, investing in gold assets denominated in local currencies may be an effective hedge against the depreciation of the local currency exchange rate. For example, the depreciation of the yen against the US dollar reached 21% in the first 11 months of this year, but the increase of gold denominated in yen reached 17% this year, which can effectively reduce the net loss of the investment institution's yen asset portfolio into the US dollar.

In the opinion of the above commodity futures brokers, more and more hedge funds have begun to increase their holdings of gold assets since December, and there are two new factors. One is to deal with the risk of continued sharp fluctuations in financial marekt next year, because gold moves relatively independently during the market crash, which can ease the decline in institutional net worth. The other is that the liquidity of gold ETFs is relatively high, which helps institutions to allocate assets flexibly. However, he said that considering that gold assets do not generate interest income, most institutions are currently pessimistic about the trend of financial marekt in the first half of next year, and have not chosen to overweight gold assets as a safe haven.

Many reporters have learned that many large Wall Street asset management institutions are assessing the severity of future financial marekt risk, once it forces global capital to adopt a more conservative investment strategy, or even only through gold group heating, they will not hesitate to increase gold asset allocation.

Global central banks continue to increase their gold reserves

It is worth noting that global central banks are becoming another important force in "supporting" gold prices.

The World Gold Council's previous "Global Gold Demand Trends Report" shows that in the first 10 months of this year, global central banks bought a net 704 tons of gold, of which a record 399 tons were purchased in the third quarter, setting a record for the fastest pace of global central bank purchases in recent years.

The report also revealed that 25% of the surveyed central banks said they would increase their gold reserves in the next 12 months, which is 39% and 29% higher than the semi-annual average over the last five and ten years, respectively.

On December 7, the China Administration of Foreign Exchange released the latest data showing that China's holdings of gold reserves increased by about 32 tons in November, bringing the total holdings of gold reserves to 1,980 tons.

The Wall Street hedge fund manager told reporters that this year, the global central bank has continued to increase its gold reserves, mainly due to various factors, one is to hedge the debt default risk of some highly indebted countries, after all, gold is a super-sovereign asset, there is no default risk; two is in the global financial marekt asset price fluctuations, gold holdings can ease the net value of the entire foreign exchange reserves fluctuations, to ensure that the size of foreign exchange reserves is basically stable; three is to increase gold holdings to help stabilize the domestic currency exchange rate, to avoid the disorderly depreciation of the latter; four is to further get rid of excessive dependence on the US dollar, reducing the impact of US dollar hegemony on the domestic financial system.

Zhang Wen, a researcher at CITIC Futures Co., Ltd., believes that this year's sharp increase in US bond yields by the Federal Reserve (corresponding decline in bond prices) is a loss to foreign exchange reserves of all countries. At this time, some central banks choose to sell US bonds and increase their holdings of gold to avoid losses.

Wang Lixin told reporters that gold has three attributes of risk diversification, volatility reduction, and anti-inflation, and has irreplaceable advantages in mainstream assets. At present, many institutional investors around the world have added a certain proportion of gold to their portfolios to strengthen the portfolio's anti-risk ability and increase risk-adjusted returns, which is reflected in central banks and sovereign funds around the world.

The World Gold Council pointed out that after the outbreak of the global financial crisis in 2007-2008, the risk of US dollar assets and the fragile global macroeconomic and geopolitical environment made global central bank reserve managers realize that their foreign exchange reserve asset portfolios need to be distributed. Gold, as a global common currency without any sovereign credit risk of any country, has become an important tool for central banks to diversify their reserve assets. Therefore, in recent years, global central banks have begun to shift to a state of increasing their holdings of gold.

The increasing attitude of global central banks towards gold invisibly affects the asset allocation strategies of large asset management institutions.

Earlier, Mr. Dalio, the former head of Bridgewater, said gold should be an important part of portfolios in an uncertain global environment because it acts as a portfolio "insurance" and a good hedge against risk.

A Hong Kong Private Offering Fund official revealed to reporters that more and more large global asset management institutions are incorporating gold into an important part of their reserve assets, as a tool to reduce the volatility of the net asset value of the reserve. This approach is actually similar to the investment strategy of overseas central banks - when many countries increase their foreign exchange reserves, they will increase their allocation of gold to reduce the fluctuation of foreign exchange reserves, so as to effectively ensure the stability of their financial marekt.