Guotai Haitong: The foundation of the gold bull market is still in place. Short-term adjustments and fluctuations can still provide good allocation opportunities.

Guotai Haitong released a research report stating that overall, the macro core factors affecting the trend of gold have not changed, the foundation of the gold bull market is still intact, and short-term adjustments and fluctuations can still bring good allocation opportunities. Even though some central banks may face pressure to sell gold in the current stalemate in the Middle East, the bank believes that global central banks are still in the trend of strategically increasing their gold holdings. Guotai Haitong's main points are as follows: 1970-1974: The first wave of the gold rise The 1970s saw the beginning of the gold bull market, mainly influenced by factors such as the restructuring of the monetary system, out-of-control inflation expectations, and speculative sentiment. Firstly, the collapse of the Bretton Woods system led to a continuous weakening of the US dollar, opening the era of free pricing for gold. Secondly, with overly loose domestic monetary policies and the impact of geopolitical conflicts leading to the oil crisis, out-of-control inflation expectations in the United States weakened the purchasing power of currency, resulting in a sharp increase in demand for gold as a store of value. Thirdly, the legalization of gold investment in the United States gave birth to speculative demand, with a large amount of speculative funds entering the market in the second half of 1974, pushing the gold price to local historical highs before the ban was lifted. 1975-1976: Who pressed the pause button on gold? The frenzied rise of gold saw a "hard brake" in 1975. Firstly, the improvement in macro fundamentals weakened the attractiveness of gold. On one hand, inflation expectations in the United States significantly cooled down. On the other hand, the stability and rebound of the US dollar and stock market decreased the attractiveness of gold as a non-interest-bearing asset. Secondly, the demand for gold from residents fell short of expectations, and the previous speculative sentiment reversed. Thirdly, the US Treasury, IMF, and the Soviet government sold gold, increasing the supply pressure for gold and affecting market expectations and investment sentiment. 1977-1980: How did gold regain its rise? The recurrence of vicious inflation, frequent geopolitical black swan events, and the collapse of fiat currency belief were important drivers for gold to rise again. Firstly, in 1977, the United States welcomed a second, more intense wave of high inflation. Internally, the overly loose fiscal and monetary policies in the United States became a breeding ground for the resurgence of inflation. Externally, the supply shock brought about by the Second Oil Crisis accelerated the out-of-control inflation expectations. Despite the Fed raising interest rates to control inflation, due to the out-of-control inflation expectations, real interest rates were actually declining. Secondly, in 1979, frequent black swan events in geopolitics accelerated the bull market in gold due to increased safe-haven demand. Thirdly, the surge in speculative demand pushed the precious metals market into a frenzy. Finally, this bull market in gold continued until 1980, when the new Fed chairman Paul Volcker violently raised interest rates, completely reversing the expectation of real interest rates and ending the bull market in gold. Learning from history: Which experiences are worth referencing? Experience 1: During stagflation, gold is the best investment choice. During the period of 1970-1974 and 1977-1980, the annualized returns for gold were 32.5% and 45.2% respectively, significantly outperforming other assets. Experience 2: The core determinant of gold prices is not inflation itself, but the relative speed between inflation expectations and nominal interest rates, i.e. real interest rates. Looking ahead, whether the Middle East conflict will loosen the market's anchor point for long-term inflation expectations is an important factor influencing the trend of gold. Experience 3: Central bank selling of gold, technical overbought signals, or leveraged liquidations may temporarily affect market sentiment, but the real factors determining the long-term trend of gold are whether significant changes occur in the macro core driving forces. Experience 4: When speculative funds flood into the market, beware of large fluctuations in gold in the short term and avoid blindly adding positions at high points. Risk warning: Continued escalation of geopolitical tensions beyond expectations causing a significant global asset adjustment, unexpected tightening of US monetary policy, high energy prices increasing the pressure on global economic recession.