Today (20), gold futures rose 2.6% to $ 1,383.85 at the beginning of the trading session, setting a new high in more than a year, mostly inspired by the Fed's dovish speech. be only of short duration, but the following five reasons show that this "golden fanaticism" is about to unfold.
The Fed will turn the pigeons to support the price of gold
After the FOMC meeting on the 19th, the resolution kept the interest rate unchanged, but the Fed's attitude turned to pigeons, from the previous "maintenance of patience" to "discretionary" action.
This brings two important aspects to gold: First, the Fed's interest rate cut will weaken the strong dollar. Gold is denominated in dollars and gold will be relatively favorable (Historically, the long-term trend of the dollar and gold is reversed; both are in the same direction during the recession). Second, current inflation is moderate. If the interest rate falls, the real interest rate will be reduced. As a gold without interest bearing assets, its attractiveness will increase relatively.
Basel III brings new definitions for gold
The new Basel III was implemented in March 2019, and the third-tier capital requirements of financial institutions and banks were abolished, and the capital should be redistributed to Tier 1 or Tier 2 capital. The gold originally belonged to third-party capital level, which is a high-risk asset, and can now be converted into low-risk assets.
What does that mean?When calculating the capital adequacy ratio, banks can treat the entity's gold as Tier 1 capital similar to the cash, which will lead to a restatement of the balance sheet.For banks, possession of gold will be more attractive.
The central bank is buying big gold
According to the World Gold Council, the gold reserves of the Global Central Bank have increased significantly. In recent years, net gold purchases have not only changed from negative to positive, but gold purchases in 2018 have reached a record.
Which countries have increased the demand for gold? Russia and China are likely to be the main force.
Sergey Naryshkin, head of the Russian Intelligence Agency, believes that the unpredictable behavior of the United States can gradually turn the dollar into a poison. He believes that in this case it is "very abnormal" to continue holding the US dollar as a reserve.
Coincidentally, China also seems to be trying to get rid of the dollar system. After the Sino-US trade war began, China significantly reduced its share of US debt. In April of this year, China's holdings reached the lowest level in two years.
If you do not buy American debt and US dollars, what do you want to buy?
The answer is probably gold. According to ICT statistics,Since September last year, Russia and China continued to fall in US debt, in contrast, gold reserves gradually increased.Analysts expect Russia will probably outperform Italy and become the world's third-largest gold holder, second only to the United States and Germany.
China converts "oil dollar" into "gold oil"
Oil is denominated in US dollars on the international market The world's largest oil importer: China, in order to expand its renminbi status and reduce its dependence on the dollar, has in recent years launched a renminbi-denominated future crude oil contract. Of course, oil-producing countries will not be inclined to accept renminbi payments, after oil companies sell oil to China, they can exchange gold directly in Shanghai or Hong Kong, which is a true "black gold for gold."
In 2018, the trading of futures "black gold for gold", the volume traded in Shanghai exceeded 500,000 contracts of 1,000 barrels of crude oil. Other countries, including the European Union and Russia, also said that US sanctions against Iran increased the risk of dollar-denominated trading.
Currently, the size of the crude and gold market is very different. Casey Research's research analysts believe that if China's gold connection to crude oil is higher, it will stimulate more demand for gold.
Overall, in the turnaround of the current global central bank, interest rates fell, along with the political gold trends of many countries, gradually giving rise to the gold appeal. Earlier this year, Newmont Mining, the world's largest gold mining company, acquired Canadian gold companies for $ 10 billion, optimistic about subsequent demand for gold. Maybe this golden frenzy is about to unfold.