Recently, spot gold broke through $2,500 per ounce during trading, and within just a month, it once again set a new historical high! At the same time, COMEX gold futures closed up 2.07%, at $2,546.2 per ounce, with a weekly increase of 3.06%, also setting a new historical high. On Monday of this week, spot gold experienced a slight pullback, but it basically stood firm above $2,500, achieving a new breakthrough.

Boosted by the surge in gold prices, several gold concept stocks soared on Monday. Xiaocheng Technology's stock price increased by more than 10% during trading, and multiple stocks such as Yulong Shares, Shengda Resources, Chifeng Gold, China Gold, and Leysen Lingling saw increases of more than 5% during trading. Hong Kong gold stocks also mostly strengthened, with China Gold International's stock price increasing by more than 7%, Lingbao Gold by more than 6%, Zhaojin Mining by more than 5%, Shandong Gold by more than 4%, and Zijin Mining by more than 2%.

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This round of gold's significant increase coincides with the trend of central banks buying gold and the Federal Reserve's approaching monetary easing window. Let's analyze how these two major factors affect gold prices.

Is the rise in gold prices due to central banks?

It seems that the blame is misplaced.

According to the latest data released by the World Gold Council, in the first half of this year, the scale of global central banks' gold reserves increased by 483 tons, with a year-on-year increase of 5%, setting a new historical high for the same period.

According to foreign media, since the summer of 2004, the total amount of gold in central banks' reserves has increased by nearly 19% in weight, and its value has grown sevenfold, reaching $2.4 trillion.

However, this growth rate is slowing down. Compared to the first quarter's global central banks' gold reserves increasing by 290 tons, in the face of repeatedly rising gold prices, the scale of global central banks' gold purchases in the second quarter was only 193 tons, a decrease of 33% compared to the previous quarter.

Among them, the net purchase of gold by global central banks in June was 12 tons, which, although higher than the 10 tons in May, was far lower than the 33 tons in April. In fact, compared to the same period last year, the total purchase and sale volumes of gold by major global central banks have both decreased.Additionally, the "gold hoarding trend" among global central banks has also shown divergence: according to the latest gold purchase data for June released by the World Gold Council, the main central banks that increased their gold holdings by more than 1 ton that month were seven in total: India (9.3 tons), Uzbekistan (9.3 tons), Poland (3.7 tons), Qatar (3.1 tons), Jordan (2 tons), the Czech Republic (1.8 tons), and Turkey (1.1 tons). Singapore, on the other hand, was the largest seller of gold in June, selling 12 tons of gold reserves.

Among them, India, as a "big gold hoarder," has increased its gold holdings by a total of 37.6 tons in the first half of this year, far exceeding the net increase of 16 tons for the whole of last year, and also surpassing China's increase of 29 tons during the same period, becoming the absolute main force in the current global gold market. India's preference for gold has a historical tradition. Haven't you seen that every Indian bride is laden with heavy gold, as if she can't walk the next second?

Adrian Ash, the research director of Bullion Vault, said this week: "Over the past five years, central banks' demand for gold has surged, with official data showing that nearly 1 out of every 10 ounces of gold produced by the mining industry has been taken in by central banks. Among them, Russia, China, India, and Turkey are at the forefront."

However, after May, China, which was previously the world's largest buyer of gold, unexpectedly stopped adding to its gold reserves. According to the latest official foreign exchange reserve data, the People's Bank of China's gold reserves at the end of July were 72.8 million ounces, remaining unchanged for three consecutive months!

This shift by the People's Bank of China seems somewhat sudden: it should be noted that in 2023, the People's Bank of China increased its gold holdings by a total of 224.88 tons, the largest increase in the world, accounting for 21.6% of the global central banks' new gold reserves during the same period. In the first quarter of 2024, the People's Bank of China still increased its gold holdings by 27.1 tons, still among the top globally. Unexpectedly, the situation changed dramatically!

According to China Securities cited by industry insiders, against the backdrop of gold prices at historical highs, the People's Bank of China appropriately adjusting the pace of gold purchases helps to control costs. However, some industry insiders believe that from the perspective of continuously optimizing the structure of international reserves and cautiously promoting the internationalization of the renminbi, the central bank's gold purchases may still be the general direction in the later period, and short-term fluctuations may be a better time for allocation.

Investing is essentially "buying low and selling high." There is not much difference between central banks buying gold. They buy at low prices, and if the current gold price is really at a high point, not selling gold is already good, and no one wants to be a "bag holder." The question is whether there is still room for gold prices to rise.

In addition, the international movement of gold often attracts global attention. According to Global Times citing the Spanish newspaper El Pais on July 28, the government of Argentine President Mile recently admitted that it is indeed transferring part of the country's gold reserves abroad, but did not specify the amount transferred, the destination, or the purpose of this move. The report stated that the Argentine central bank's asset reserves include nearly 2 million ounces of gold (about 57 tons), valued at approximately $4.5 billion.

So why does Argentina want to transfer its own gold abroad? According to the country's officials, "locking gold in the central bank and doing nothing is detrimental to the country. It is best to put it outside, so that some returns can be obtained."

If we regard central banks buying gold as an investment, there are many factors that affect the rise and fall of gold, among which the monetary policy of the Federal Reserve is undoubtedly the most important: the Federal Reserve's interest rate cuts may be imminent, thus boosting the rise of gold!Does lowering interest rates always work like a charm?

The specific relationship between gold prices and interest rates has been analyzed in a previous article "Gold, Adjustment!" from the Financial Breakfast series. Here are the key points:

According to research by the Zhongtai Asset Management team, at the end of February, expectations for a Federal Reserve rate cut rose significantly, leading to a rapid increase in gold prices. Subsequently, even though inflation and employment data exceeded expectations, gold prices remained strong. This is partly related to market sentiment and trend inertia, and on the other hand, it can be understood that if inflation is resilient but still faces rate cuts due to other pressures, it implies a greater decrease in real interest rates (nominal interest rate - inflation rate). It is this "talking about expectations" that has supported gold prices!

The above statement may seem a bit awkward, but we can simplify it to: whenever there is an expectation of interest rate cuts, gold prices often "soar to the heavens," and conversely, if there is a dominant expectation of interest rate hikes, it is definitely not good news for gold prices.

Now, with the release of a series of economic data, the market generally expects that the Federal Reserve's rate cut may already be "on the string," likely in September. It is only natural to boost gold prices! Especially, the central bank's "Davos Forum" - the Jackson Hole Central Bank Annual Meeting - is about to take place this week!

According to media reports, this year's meeting will be held from August 22nd to 24th, Eastern Time, where central bank officials and economists from around the world will gather in Jackson Hole, Wyoming, USA, to discuss current hot issues in the global economy. The attitude of the Federal Reserve is undoubtedly the most concerned by the market.

The pre-meeting whispers are very important: On August 18th, one of the 12 FOMC voters for 2024, San Francisco Federal Reserve Chairman Mary Daly, said, "The latest economic data shows that inflation has been controlled, and it is time to consider lowering interest rates." Her remarks undoubtedly increased the market's confidence in the Fed starting a rate cut cycle in September. The market estimates that the possibility of the Federal Reserve cutting interest rates by 25 basis points in September is about 70%, and a few people also expect a 50 basis point cut.

If the remarks of the voters are just for reference, then the recent U.S. price and employment data provide conditions for the Federal Reserve to lower interest rates (the two main work goals of the Federal Reserve).

According to data from the U.S. Department of Labor, the U.S. CPI rose by 3% year-on-year in June, the lowest level in the past 12 months; the PCE price index, which the Federal Reserve pays more attention to, rose by 2.5% year-on-year, the lowest level since March 2021. These changes have alleviated the Federal Reserve's concerns about inflation getting out of control and have provided room for it to implement a more accommodative monetary policy.In terms of unemployment rates, the United States saw a comprehensive cooling in the non-farm employment data for July, with only 114,000 new non-farm jobs added, falling short of the market's expectation of 175,000. The unemployment rate rose to 4.3%, triggering the critical value of the Sam Rule. The unemployment rate for June increased by 0.1 percentage points month-on-month to 4.1%, also the highest value since November 2021.

From the market's perspective, the decline in inflationary pressures and weak employment data have intensified investors' concerns about a slowdown in the momentum of US economic growth, further strengthening expectations for a Federal Reserve rate cut, which in turn has laid the foundation for the recent rise in gold prices. Bart Melek, Global Head of Commodity Strategy at TD Securities, pointed out that gold investors generally believe that the Federal Reserve will be aggressive in its rate-cutting policy, with many expecting gold prices to rise further to $2,700 in the next few quarters.

Of course, in addition to expectations of a rate cut by the Federal Reserve, geopolitical uncertainties also highlight the safe-haven asset attributes of gold. Two of the most typical examples are the ongoing escalation of the Russo-Ukrainian war, which not only exacerbates regional instability but also triggers global concerns about energy supplies, trade relations, and geopolitical landscapes. Similarly, the intensification of the Israeli-Palestinian conflict has further increased tensions in the Middle East. Against this backdrop, gold, as a traditional safe-haven asset, has gained widespread market recognition for its functions of preserving and increasing value, and its price has naturally risen accordingly.