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Huitong Financial App News-with the collapse of long-term correlation, there has been a new paradigm shift in the gold market, which means investors must follow the new script, according to an investment company.
On Friday, Incrementum AG released its annual In Gold We Trust report, a more than 400-page report that analyzes key elements in precious metals. Analysts led by Ronald-Peter Stferle and Mark J. Valek, fund managers of the company, say structural changes in the global economy have driven renewed demand for gold, which is a neutral asset on the world stage.
Before the release of the report, Stferle gave an example of the evolving pattern: the period of low inflation that defined global markets over the past two decades, the "Great moderation Trade", has come to an end.
Playamocasinonodepositbonus"inflation seems to be not just temporary, but rather sticky," he said. A core part of the report is that the great moderation is over and inflation volatility will continue to be an important topic. Therefore, we think this provides a solid reason for gold. "
In addition to the threat of inflation, there has been a surge in global debt, geopolitical uncertainty about the role of the dollar as the world's sole reserve currency, and physical gold flowing from western investors to eastern investors, the report said. is creating new long-term trends in the gold market. The Liechtenstein-based fund reiterated its long-term forecast that gold prices would reach $4800 an ounce over the next six years.
Stferle said that while he believes gold has strong long-term potential, investors should expect a period of volatility as the market opens up a high range. But some consolidation will not affect the broader landscape.
"Gold has risen nearly $600 since its low in October 2023, so profit-taking should not be surprising," analysts said in a report. "
According to the report, the most convincing evidence of gold's new script this year is that gold has performed unprecedentedly in the face of significant traditional headwinds. Gold has surged to an all-time high above $2400 an ounce this year as the Fed maintains its most aggressive tightening cycle in 40 years.
The gold market can also withstand large capital outflows from western markets. According to the report, more than 760 tons of gold have flowed out of gold ETF since April 2022.
"according to the old gold script, given the decline in ETF holdings, gold should be around $1700," analysts said.
Analysts say the growing influence of central bank demand in emerging markets and strong retail demand in major markets such as Asian countries has pushed western investment demand behind the scenes. "the restructuring of the international economy and power structure, the dominant impact of emerging markets on the gold market, reaching the limits of debt sustainability and possible waves of inflation have all led to the appreciation of gold. This phase will continue for some time until a new balance is established. " Analysts say central banks have become the determining factor for gold, creating a bottom for the market. According to the report under the new script, central banks are looking for a neutral asset while staying away from dollars and bonds. "the uniqueness of gold as a neutral reserve currency without counterparty risk is now being rediscovered," analysts said. Structural growth in central bank demand is a key part of the new script, mainly because central bank demand is relatively insensitive to prices. For state actors such as central banks and sovereign wealth funds, gold is increasingly becoming the golden queen on the geo-economic chessboard. " Meanwhile, retail investors in emerging markets have become important buyers of gold. In the past five years, 70 per cent of physical gold demand came from emerging markets, more than half of which came from Asian countries, according to the report.
Investment demand in Asian countries has increased over the past year as investors holding record savings face a contraction in liquid investment opportunities, analysts say.
"now that the real estate markets in Asian countries, which are traditionally used to prepare for retirement, are in turmoil, there is a great demand for alternatives," they said. "
Western investors have been reluctant to recognise gold's new script as they focus on increased opportunity costs, but Incrementum said it was only a matter of time before they expected the trend to shift. Analysts said they expected growing government debt to continue to put pressure on the bond market, ending the traditional 60ap40 portfolio allocation. "in an era of inherent overindebtedness and therefore a permanent potential inflation risk, there is one big loser in all asset classes: bonds," analysts said. " In this new era, Incrementum says investors should consider a more balanced portfolio, including holding up to 25 per cent of physical gold bars and coins.
"given our scepticism about government bonds, we believe that more and more market participants will consider increasing the weight of safe-haven gold and high-performance gold in the future," analysts said. " Analysts added: "specifically, in portfolios with longer investment periods, we think it is wise to account for as much as 15 per cent of safe-haven gold and as much as 10 per cent of high-performance gold. Safe-haven gold is an automatically guaranteed liquid asset that is mainly used to hedge against economic and (geopolitical) instability, high inflation and the worst-case scenario. "
While the fund sees long-term potential for gold, analysts also highlight some risks, including a longer-term rise in interest rates and the possibility of a stock market crash, creating liquidity events, depressing gold and easing geopolitical tensions.
Spot gold daily chart source: Yi Huitong 13:09 Beijing time on May 22nd spot gold report 2413Playamocasinonodepositbonus.45 US dollars per ounce.