After the Spring Festival spending boom, gold prices continue to soar.

On March 6th, data from several gold brands such as Chow Tai Fook and Chow Sang Sang showed that the price of domestic 99.99% pure gold jewelry has broken through 650 yuan/gram. On the basis of consecutive high positions for several days, it has set a new historical record.

In addition, although the prices of other types of gold are not as high as that of pure gold jewelry, they are also at a high point. Taking Chow Tai Fook as an example, on March 6th, the price of crafts (gold bars, gold coins, etc.) has reached 640 yuan/gram, while the price of investment gold has reached 580 yuan/gram.

Advertisement

This is in line with the trend of the domestic gold market. Data from the Shanghai Gold Exchange shows that on March 6th, during the trading of the gold spot cash transaction variety - Au99.99 contract, it once rose to 503.99 yuan/gram, surpassing the 498 yuan/gram in December 2023. At the end of the day, the Au99.99 contract was reported at 499.76 yuan/gram.

Domestic gold prices are closely related to international gold prices. Data from the London Stock Exchange (LSEG) shows that on March 5th, the international gold price touched 2141 US dollars/ounce, breaking the record of 2135 US dollars/ounce set in December 2023, but then quickly gave up the increase, falling to 2131 US dollars/ounce. As of 18:00 on March 6th, Beijing time, the spot gold price was reported at 2127.97 US dollars/ounce, with the highest touch of the day at 2131.49 US dollars/ounce.

Li Gangfeng, an analyst at the European mining fund Commodity Discovery, believes that at present, there has been no black swan event in the market. Against this background, the sharp rise in gold prices reflects the market's consensus on the future trend of gold prices. The market is betting that the Federal Reserve will cut interest rates soon, and the biggest question mark is only the timing of the rate cut.

Zhan Dapeng, the director of non-ferrous metals at Everbright Futures Research Institute, believes that before the Federal Reserve's first interest rate cut, the market's bullish expectations for gold are strong, and the probability of gold prices continuing to rise and fluctuate is relatively large, but the upward momentum may not be "smooth sailing". "Looking from the perspective of the global gold fundamentals, the global central banks' purchase strength of gold is weakening, and the consumption of gold jewelry may decrease to a certain extent, which may bring some negative impact to high gold prices, so investors need to pay attention to the rhythm of operations," he said.

On the afternoon of March 6th, China Construction Bank stated that from 9:10 on March 7th, the starting amount for the bank's individual gold accumulation business regular accumulation will be increased from 500 yuan to 600 yuan.

Accumulated gold is a way to invest in physical gold, where investors open an accumulated gold account at commercial banks and buy gold at real-time quotes. The increase in the minimum investment amount for individual customers means that the investment cost for investors has increased.

On March 6th, gold stocks were active. By the end of the day, Chifeng Gold rose by more than 2%, and Shandong Gold rose by more than 1.7%. Since the beginning of the month, the gold concept index has risen by more than 4%. In addition, the increase of various gold ETFs since the beginning of the month has exceeded 3%, among which the largest scale Huanan Gold ETF reached a scale of 14.657 billion yuan as of March 5th.Expectations of Interest Rate Cuts Boost Gold Prices

The international gold price has continued its upward trend since March 1st. This is due to the weakening of US economic data, which has led to increased market expectations for a Federal Reserve interest rate cut in June. Gold, being a non-interest-bearing asset, benefits from a decrease in borrowing costs as the opportunity cost of holding bonds for investors rises.

On March 1st, local time, data from the Institute for Supply Management (ISM) showed that the US Manufacturing Purchasing Managers' Index (PMI) for February was 47.8%, lower than January's 49.1%. Moreover, the contraction was much greater than expected. As a result, on March 1st, the international gold price rose by 2% in a single day, marking the largest single-day increase since October 13th, 2023.

In the following days, US Treasury yields continued to decline. The two-year US Treasury yield fell by 0.23 percentage points and is now at 4.56%.

Some traders believe that there is an 85% chance that the Federal Reserve will cut rates by 25 basis points for the first time before June, higher than the 70% possibility earlier last week. Previously, international financial institutions such as the World Bank, Goldman Sachs, Morgan Stanley, and UBS predicted that the Federal Reserve would cut rates for the first time as early as June.

Li Gangfeng believes that although the market has repeatedly postponed the timing of the Federal Reserve's interest rate cut, in fact, the market has recently added more evidence supporting the Federal Reserve's rate cut this year. "The more such evidence, the more it is beneficial for gold prices. Funds have been ready to buy gold, but the timing is uncertain, which is why they are waiting," he said.

On February 27th, the Consumer Confidence Index released by the Conference Board showed that in February, the US Consumer Confidence Index fell from January's 110.9 to 106.7, reversing the trend of continuous growth over the previous three months. The organization stated that the index measuring the current situation and the index measuring future expectations have both deteriorated this month, with the latter falling below the threshold that usually indicates an economic recession. The pessimistic sentiment reflects the ongoing uncertainty in the US economy.

In addition to the expectations of a Federal Reserve rate cut, the increase in physical demand for gold bars and coins has also become another driving force for the rise in gold prices. Data from the Ministry of Commerce shows that during the Spring Festival in 2024, China's sales of gold products, mainly gold and jewelry, increased by 24% year-on-year. The World Gold Council also stated that this phenomenon is not limited to physical stores, as gold jewelry sales on Tmall and JD.com both more than doubled during the Spring Festival.

Furthermore, geopolitical tensions in recent months have also highlighted the role of gold as a safe-haven asset. Amidst attacks on shipping in the Red Sea, the geopolitical situation in the Middle East is heating up. By the end of 2024, the United States will face another round of presidential elections. On March 5th, Trump and Biden have each won 60% and 40% of the party delegates' votes needed for their respective party nominations, which means that both are likely to secure their nominations soon.

Affected by safe-haven demand and other factors, in terms of central bank purchases, data from the World Gold Council shows that in 2023, central banks bought 1,037 tons of gold. Although this figure is slightly lower than in 2022, it remains at a high level.Will gold prices break through $2,250 by the end of the year?

UBS forecasts that by the end of June, the international gold price may be $2,050 per ounce. By the end of 2024 and the end of March 2025, it is expected to rise to $2,250 per ounce.

The bank believes that gold can serve as a tool for hedging various risk events in a portfolio, so investors might consider allocating about 5% of gold in a diversified and balanced US dollar investment portfolio. At the same time, the bank is optimistic about related gold mining companies, as their valuation levels are more attractive than gold.

Li Gangfeng stated that assuming the situation in 2024 is in line with historical data, that is, the US economy will weaken but not collapse, there will be a significant chance for the international gold price to rise in 2024.

Recently, Goldman Sachs CEO David Solomon warned investors not to be overly confident that the Federal Reserve can achieve a "soft landing" for the US economy in the fight against inflation. "There is a higher level of uncertainty due to the remaining inflationary pressures and geopolitical risks in the economy," he said.

However, in the view of some analysts, the current basic US consumer sentiment is positive, which will become the driving force to support the rise of the US economy. Data shows that consumption accounts for about 70% of the US Gross Domestic Product (GDP).

"Consumer balance sheets are better than imagined at the beginning of the year. We still expect some slowdown, but it may be postponed to the second half of the year. As long as the job market remains stable, we believe the strong momentum of consumer spending will continue for some time," said Satyam Panday, Chief US Economist at S&P Global Ratings.

The World Bank predicted in January that in 2024, the US economy will grow by 1.6%.

Regarding the demand for physical gold, the World Gold Council forecasted that due to the uncertainty of interest rate cuts and economic recovery, the demand for Chinese gold bars and coins in 2024 may remain strong, but it is difficult to replicate the significant growth seen in 2023.

The organization also stated that if central banks around the world continue to increase their gold holdings and individual investors' attention to gold further rises, Chinese gold consumption will be further boosted. In addition, if there are fluctuations in the renminbi assets, it will also prompt Chinese investors to turn to gold, which has more value preservation and appreciation functions.Additionally, Li Gangfeng also cautioned that against the backdrop of expectations for interest rate cuts, global risk assets are poised to perform well. Should equity assets like U.S. stocks demonstrate superior performance, international gold prices may not necessarily be among the best-performing assets in 2024.