Summary of Key Points
Recently, gold prices have seen a significant increase, with both COMEX gold futures and physical gold recording the highest weekly gains in half a year. This surge is primarily driven by two factors: the unexpectedly weak July non-farm payroll data from the United States (which led to a decrease in employment), reducing market expectations for interest rate hikes by the Federal Reserve; and the improved prospects for the opening of the Strait of Hormuz, which has alleviated energy inflation pressures. Meanwhile, central banks (such as those in China and South Korea) have continued to increase their gold holdings, while individual investors have accelerated their sales as prices rose. There is a divergence in views among institutions regarding the future direction of gold: some are optimistic about a short-term rebound, but whether the upward trend can be sustained in the medium to long term depends on key variables such as interest rate expectations, Middle Eastern tensions, and capital flows.
The Two Direct Drivers of the Gold Surge: Weak Non-Farm Data + Expectations of the Strait Opening
The sudden rise in gold prices was mainly due to two positive developments:
1. Weak U.S. Non-Farm Data, Lowering Interest Rate Hikes
The number of new jobs created in the United States in July not only failed to increase but decreased by 23,000 (the market had expected an increase of 80,000), indicating that the U.S. economy may not be as strong as previously thought. The Federal Reserve's previous interest rate hikes were aimed at curbing inflation, and now that the economy has slowed down, the likelihood of a hike in September seems lower. With reduced expectations for interest rate hikes, the dollar is likely to weaken, and since gold is priced in dollars, a weaker dollar makes gold more affordable.
2. Improved Prospects for the Strait of Hormuz Opening, Alleviating Energy Inflation
The Strait of Hormuz is a critical route for global oil transportation. If it opens, oil flows will become smoother, potentially leading to lower oil prices and reduced inflationary pressures. Although this could diminish the demand for gold as an inflation hedge, the impact of lowered interest rate expectations is more significant, resulting in higher gold prices. UBS even predicts that gold prices could reach $5,000 per ounce in the first half of 2027.
Central Banks Buying More as Prices Rise vs. Individual Investors Selling More as Prices Rise: The Logic Behind the Divergent Behaviors
Despite both facing rising gold prices, the actions of central banks and individual investors are completely opposite:
- Central Banks: Long-Term Investment, Increasing Holdings
The People's Bank of China has been buying gold for 21 consecutive months (adding another 640,000 ounces in July), and the South Korean Central Bank restarted its gold purchase program after a 13-year hiatus. Why are central banks so persistent? Because gold is considered a hard currency that can protect against dollar depreciation and geopolitical risks, making it a good long-term investment regardless of short-term price fluctuations.
- Individual Investors: Seeking Short-Term Profits, Selling as Prices Rise
After domestic gold jewelry prices reached 1,300 yuan per gram, many people took their gold to be sold (at a recycling price of around 926 yuan per gram). Individual investors typically buy gold for consumption or short-term speculation and sell when prices rise to lock in profits, which is a stark contrast to the long-term perspective of central banks.
Divergent Views from Institutions: Short-Term Rebound Possible, but Medium to Long-Term Growth Uncertain
Different institutions have vastly different views on the future of gold:
- Short-Term Rebound Optimism: Zhejiang Securities believes that the short-term speculative funds in the gold market have already left, reducing selling pressure. Combined with the positive factors of non-farm data and the Strait opening, a short-term rebound is likely. CITIC Futures also sees potential for further gains, but this depends on whether the agreement regarding the Strait opens and whether ETF funds continue to flow into the market.
- Medium to Long-Term Cautionary Optimism: The World Gold Council views the second half of the year as a critical juncture for gold, suggesting that central bank purchases may be lower than last year, making it difficult for gold prices to sustain previous gains. UBS is more optimistic, believing that long-term factors such as Chinese demand, ETF inflows, and loose interest rates could support gold prices, potentially reaching $5,000 per ounce.
Key Variables Determining Future Gold Prices: How Long Can the Rise Last?
The future direction of gold prices depends on several uncertain factors:
1. Whether Federal Reserve Interest Rate Hikes Really Slow Down: Although the weak non-farm data has lowered interest rate expectations, there are still hawkish members within the Fed advocating for hikes. A decline in oil prices may only temporarily ease inflationary pressures, and the Fed might not immediately reverse its stance. If the Fed suddenly announces another hike, gold prices could fall.
2. Stability of Middle Eastern Situations: If the agreement regarding the Strait of Hormuz fails or tensions in the Middle East resurge, oil prices could rise again, affecting gold prices.
3. Sustainability of Capital Flows: Domestic gold ETFs have seen a 17 billion yuan increase in one week, and overseas SPDR funds are also flowing into the market. However, if these flows stop abruptly, the upward trend may be unsustainable.
4. Physical Demand: The demand for gold jewelry and bars is a fundamental driver of long-term price trends. If demand for physical gold declines, it could limit further increases.
In summary, there is a short-term opportunity for a rebound in gold prices, but sustained growth depends on the changes in these factors. For individual investors considering participation, it's important to determine whether their approach is based on short-term speculation or long-term investment. In the short term, attention should be paid to developments in the Middle East and the Fed; in the long term, central bank policies can provide a reference, but avoid chasing high prices.