Reference News Network, February 25 report: The UK's Financial Times website published an article titled "Gold Enters the 'Storytelling' Phase" on February 23. The author is Ruchir Sharma, chairman of Rockefeller International in the United States. The content is translated as follows:
After years of sharp increases, gold prices have entered a phase dominated by "narratives." It has moved away from the fundamental forces that long explained its ups and downs, and now it is rising due to various narratives about global risks and uncertainties.
This has led some observers to feel that the current situation resembles the gold rush of the 1970s.
For a long time, gold has been seen as a safe-haven asset because its price has generally kept up with inflation over centuries, although there have been periods of significant drops and surges in gold prices.
Sharp rises in gold prices often occur during periods of declining real interest rates. When the returns on savings accounts or bonds decline, people tend to transfer their wealth into gold. This asset itself does not generate income, but at least it can preserve and increase in value.
This pattern began to change substantially in 2023. Despite high real interest rates that have continued to rise, gold prices started to soar.
The main driver behind this was central banks significantly increasing their gold reserves, as they sought to shift their reserve assets away from the US dollar, due to the US "weaponizing" the dollar.
Since then, gold prices have surged, but the "anti-dollar revolution led by foreign central banks" I mentioned earlier is no longer sufficient to explain the current trend in gold prices.
In the past year, the pace of gold purchases by central banks has slowed down. Jewelry demand has declined sharply due to consumers being deterred by high prices.
At the same time, gold demand from investors in major markets from the United States to India and the United Kingdom has surged. Driven by a flood of funds flowing into gold ETFs (exchange-traded funds), the share of global investors in gold purchases doubled last year to 35%.
In short, gold prices are now mainly driven by financial demand, a shift that is overturning traditional understandings of its valuation.
Models used for years to explain gold prices (including real bond yields and inflation expectations) have now failed.
The story told by gold bulls is that the current world situation resembles the background of past "super cycles" of gold (especially the long and strong bull market of the 1970s).
But today's inflation rate is far from the double-digit levels during the presidency of Jimmy Carter. Moreover, it is hard to say that uncertainty factors such as President Trump's tariff policies and the Russia-Ukraine conflict are objectively more unsettling than oil embargoes, the Vietnam War, and the Iranian hostage crisis of that era.
An alternative popular explanation is that gold continues to strengthen as a safe haven against "dollar depreciation."
But if that were true, why have other dollar alternatives like Bitcoin also fallen sharply, while U.S. stocks and U.S. bonds remain resilient?
Nevertheless, it is currently difficult to see any factor that can break this upward trend.
Global liquidity remains abundant, so many investors are looking for more places to put their money. Even after the recent gold buying frenzy, the proportion of gold held in investors' portfolios is still low.
The gold "super cycle" of the 1970s ended when the Federal Reserve raised interest rates significantly to curb inflation, and this scenario is almost impossible to repeat now.
Therefore, gold enthusiasts believe that gold still has a lot of room to rise, and their judgment may be correct. Calculated based on inflation-adjusted actual value, gold prices have risen more than three times in the past ten years. But compared to the more than tenfold increase in the 1970s, this is not much.
Although I have long been optimistic about gold, my attitude toward this precious metal is now more cautious. When the market moves away from fundamentals and is driven increasingly by random stories, it is difficult to distinguish which stories are credible and sustainable. (Translated by Yang Xuele)
Original: toutiao.com/article/7610766382191460873/
Statement: This article represents the views of the author themselves.