Securities: "gold" under the new peak?

Shenwan Hongyuan Group Securities issued a research report stating that on September 20th, the price of gold reached a new historical high again; however, the deviation between gold price and real interest rates, as well as ETF holdings, has also raised concerns about "fear of heights." The first wave of increase may have been driven by central bank gold purchases; while more recently, the release of investment demand after the decline in US bond yields is the main reason. In terms of trading, investment demand in Europe and the United States is still dominated by the framework of real interest rates, and attention should be paid to the possible interpretation of US bond yields after the election results are announced. If Trump is re-elected, the advancement of "tariff hikes" may drag the US economy into recession, which would be bullish for gold; if Harris is elected, her supportive policies for residents or the resilience of US consumption may constrain the upside potential of gold prices if a "recovery trade" is initiated. I. Hot Topic Analysis: "Gold" under new highs? (I) How did the price of gold reach a new high? Central banks and investors pushing it up Recently, the price of gold reached a new historical high again. As of September 20th, COMEX gold closed at $2622 per ounce, setting a new record high. The trend of gold since the beginning of the year can be divided into three stages: 1) January 1st-April 17th, gold price rose by 14%; 2) April 18th-June 25th, gold consolidated and fell by 2%; 3) Since June 26th, gold surged again, rising by 13%. The first wave of increase may have been driven by central bank gold purchases; while more recently, the decline in US bond yields has led to the release of investment demand. 1) In the first quarter of 2024, global central banks collectively purchased 300 tons, accelerating compared to the previous quarter. 2) Since June 10th, the 10-year US bond real interest rate has fallen by 58 basis points, leading to the release of gold investment demand; as of September 17th, non-commercial net long positions in gold increased to 99.4%. (II) Does the price of gold need to be feared? Long-term logic is still relatively smooth Concerns about the price of gold being feared, or the deviation of the price of gold from real interest rates; this gap may be caused by central bank gold purchases. Traditional frameworks focus on investment demand driven by inflation, opportunity costs, etc., which dominate the price of gold; since 2022, central bank gold purchases have increased significantly, leading to a shift in demand curve, resulting in a widening gap between gold prices and real interest rates. Taking central bank gold purchases into account, the central price of gold may be around $2323 per ounce. Looking at the structure of foreign reserves in countries like China and India, there is still room for central bank gold purchases; under the "passive reduction" of US bonds, the pace of gold purchase is expected to be maintained. Central bank gold purchases may be driven by some countries based on security considerations; countries like China and India have a low proportion of gold in their foreign reserves, and there is still room for growth. The pace of US bond reduction is closely related to the pace of gold purchases, with the medium to long-term maturity of US bonds increasing until 2026, which may maintain the pace of gold purchases under passive reductions. (III) Possible scenarios for the price of gold? Focus on the US election and domestic economic expectations In terms of trading, investment demand in Europe and the United States is still dominated by the framework of real interest rates; attention should be paid to the possible interpretation of US bond yields after the election results are announced. 1) If Trump is re-elected, the advancement of "tariff hikes" may drag the US economy into recession, which would be bullish for gold; 2) If Harris is elected, her supportive policies for residents or the resilience of US consumption may constrain the upside potential of gold prices if a "recovery trade" is initiated. Currently, China's gold allocation may be overly crowded, but whether it will shift still depends on changes in economic expectations. The surge in domestic gold investment demand may be driven by the underperformance of other assets such as the stock market. As of September 20th, the RSI of COMEX gold was 72.1, in the overbought zone. However, until the relative attractiveness of other assets increases, the asymmetry of gold prices to real interest rates may persist in the long term. II. Major Asset Classes & Overseas Events & Data: US Retail Sales in August stronger than expected, Fed cuts rates more than expected The Fed's rate cut exceeded expectations, causing fluctuations in global capital markets. The Nasdaq rose by 1.5%, the Nikkei 225 rose by 3.1%, Brent oil rose by 4.0%, the 10-year US bond yield rose by 7 basis points to 3.73%, and the US dollar depreciated against the offshore RMB to 7.04, and the yen depreciated by 2.1% against the US dollar. Harris's poll leads. As of September 19th, RCP's aggregated polling data showed that Trump's approval rating was 47.4%, Harris's was 49.4%, and Harris's lead widened by 2% compared to the previous week (September 13th). Among the seven swing states, Trump leads in Georgia, Arizona, and North Carolina, while Harris leads in Michigan, Wisconsin, Pennsylvania, and Nevada. US retail sales in August were up 2.1% compared to the same period last year, and up 0.1% compared to the previous month, surpassing market expectations of -0.2%. Structurally, grocery and online channels performed strongly. As of September 14th, the number of initial jobless claims for the week was 219,000, lower than market expectations. Risk Warning: Central bank gold purchases slow down more than expected; US economic growth exceeds expectations; gold investment demand weakens more than expected. This article is from the WeChat public account "Shenwan Hongyuan Group Macro", GMTEight editor: Liu Xuan.