Gold Prices Keep Rising: How Much Higher Can They Go?

This year, international gold prices have continued to rise, marking a new bull market trend. From the beginning of the year to now, the international spot price has increased by 32%, with the lowest point this year at $1,962, and as of the closing price on October 21, it has reached $2,736 per ounce (the article will be updated with the latest data).

However, how much higher and for how long can international gold prices rise in the short term? We need to conduct an in-depth analysis of the major drivers behind the rise in gold prices:

1. Gradual easing of global monetary policy

The Federal Reserve officially entered a rate-cutting cycle in September this year. Prior to this, the European Central Bank had already entered a rate-cutting cycle. China, as a representative of developing economies and a manufacturing powerhouse, also released a relatively clear stimulus signal for the financial market before the National Day holiday. The gradual easing of global monetary policy is mainly aimed at stimulating economic growth again. Under this background, international gold prices can not only gain support from monetary policy but also receive support from the consumption volume of gold's commodity attributes during economic expansion.

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2. Surge in U.S. debt

According to IMF data, in 2023, global government debt is about $97 trillion. The organization's forecast for government debt of G7 countries from 2024 to 2029 shows that the ratio of government debt to GDP in the United States, the United Kingdom, France, and Italy will rise significantly.

Data source: ifind

The U.S. Congressional Budget Office estimates that the ratio of public debt to GDP will rise from 98% in 2023 to 181% in 2053, the highest level in the country's history. Recent data released by the U.S. Department of the Treasury shows that the deficit for the fiscal year ending September 30 was $1.83 trillion, higher than the previous fiscal year's $1.7 trillion, and the highest record except for the fiscal years 2020 and 2021.

Professionals analyze that as debt increases, the U.S. government and other governments may resort to printing money to solve the deficit problem, which may lead to currency devaluation. This erosion of trust in fiat currency enhances the appeal of gold as a reliable store of value.

3. Increased demand for safe-haven assetsThe year 2024 is a global super election year, with statistics showing that over 76 countries and regions will hold more than 100 election events. As the U.S. election approaches and recent conflicts in the Middle East escalate, geopolitical uncertainties remain significant, leading to a substantial increase in the demand for gold as a safe-haven asset.

IV. Central Banks' Continuous Gold Purchases Provide Support

The latest report from the World Gold Council indicates that central banks' gold purchases have set a new record for two consecutive years. However, reserve managers from various central banks still favor gold, providing strong support for gold prices.

In July, global central banks' net increase in gold reserves was 37 tons, a month-on-month growth of 206%, marking the highest monthly total since January (45 tons). Poland, Uzbekistan, and India have become the main forces in purchasing gold.

Despite the relatively sluggish physical consumption of gold, as a safe-haven asset, more and more institutions express optimism about the long-term prospects of gold as prices rise.

Michael Widmer, a commodity strategist at Bank of America, stated that gold now looks better than ever before. He believes we are close to reaching $3,000. He attributes his optimistic outlook on gold to the rising levels of government debt and brewing geopolitical uncertainties.

Citi analysts also insist that gold prices will touch $3,000 within the next six to nine months. Citi stated that despite a decline in retail demand in China over the past three months, gold prices have still performed "very well," reflecting buyers' willingness to pay higher prices.

Fee Reduction and Benefit Concession

According to the announcement, starting from October 17, 2024, the annual management fee rate for Gold ETF Huaxia (518850) and its linked funds will be reduced from 0.5% to 0.15%, and the annual custody fee rate will be reduced from 0.1% to 0.05%, with reduction percentages of 70% and 50%, respectively; the adjusted combined fee rate will be 0.2%.Reducing fees and offering benefits is something Huaxia Fund takes seriously. After this adjustment, the Gold ETF Huaxia (518850) has been reduced to the lowest fee level among similar products in the entire market! This genuinely helps investors save costs.

On October 17th, after the product announced the fee reduction, the attention it received significantly increased, and trading volume noticeably expanded. As of October 22nd, the product's scale reached 670 million yuan, with nearly 200 million yuan of capital layout in the last six trading days, nearly tripling in scale this year.

As is well known, ETF is a low-cost, high-efficiency passive investment tool. The differences between products tracking the same benchmark index are not significant, and the fee rate is often an important reference factor for mature investors when choosing ETFs. For investors, they can better seize investment opportunities in the gold sector at a lower fee level.

Related products:

(1) Gold ETF Huaxia (518850) closely tracks the gold price trend and supports T+0 trading, suitable for investors with asset allocation needs, who can use gold as a base for asset allocation, and the external connection (008701/008702)

(2) Gold Stock ETF (159562) is suitable for investors who are optimistic about the future profit performance of individual stocks in the gold industry chain, aiming to appropriate gains from the equity market and pursue higher elasticity, and the external connection (021074/021075)

Zhongyou Securities believes that in this round of gold price increases, gold stocks have a significant lag compared to the gold price, and the market is concerned about the sustainability of the gold price and the performance of gold stock earnings. The institution believes that this year, the cost increase for gold companies is relatively small, and the probability of a deep correction in the gold price is small, and the stock price has the foundation to be repaired along with the gold price.

Note: Gold ETF Huaxia tracks the Shanghai Gold Exchange gold spot contract Au99.99 price, and its complete accounting year performance from 2019 to 2023 is: 19.94%, 13.83%, -4.85%, 9.84%, 17%. The historical performance of the index does not predict the future performance of the fund product.