Gold has always been favored as a safe-haven asset, but its recent volatility has been compared to a roller coaster ride. During the National Day holiday, the international gold price fell continuously for 9 trading days, reaching a 7-month low. However, with the escalation of geopolitical conflicts and the continued enthusiasm of central banks around the world in buying gold, the price of gold has recently rebounded.
The short-term fluctuations in the gold price are considered normal by industry experts. These fluctuations are mainly influenced by the real interest rate of the US dollar, which has a negative correlation with the gold price. Factors such as the level of the Federal Reserve’s interest rate and the inflation rate in the US affect the real interest rate of the US dollar and in turn, the gold price.
The CEO of the World Gold Council in China, Wang Lixin, emphasizes that gold price fluctuations are normal and should not be considered as “big jumps”. He states that the recent decline in gold price from $1,900 per ounce to around $1,800 per ounce may seem significant, but when calculated as a percentage, the decline is not substantial. He also points out that the domestic gold price in China is influenced by both international gold prices and the scarcity of gold in the domestic market due to import regulations.
When it comes to the investment value of gold, Wang Lixin highlights a few points. First, gold has provided a stable average annual return of 6% to 8% over the past few decades, which is rare among financial products. Second, gold is an internationally recognized financial product that can be converted into any currency, unlike many other financial products. Third, the volatility of gold is relatively low compared to other financial products, reducing the risk of capital loss. Lastly, liquidity is important for any good financial product, ensuring there is a deep market when investors want to sell.
Central banks around the world, including China, have been increasing their gold reserves. China’s official gold reserves have reached a record level of 70.46 million ounces, accounting for 4% of its total official reserves. The World Gold Council reports that global central banks added 77 tons of gold to their reserves in August, with China, Poland, and Turkey being the major buyers. Wang Lixin explains that central banks have recognized the unique safe-haven and risk diversification properties of gold during economic crises, which has led to an increase in gold reserves.
Looking ahead, central banks are expected to continue increasing their gold reserves, although the exact amount of increase may not surpass the previous year. Wang Lixin points out that more central banks are considering increasing their gold reserves in the next couple of years. Overall, gold’s investment value remains strong for long-term investors.