The hot topic of global concern recently is clearly the situation in Russia and Ukraine. Driven by factors such as the rising conflict between Russia and Ukraine and the removal of Russia from SWIFT by Europe and the United States, global financial markets have seen dramatic fluctuations and a significant impact on capital risk appetite. The market's concern about the supply of commodities is intensifying, the global capital risk aversion is unprecedentedly high, and the price of gold has soared. The advantages of CXM Direct's gold trading are deservedly the best in the industry, there are many customers in CXM Direct's trading in Gold, and the current gold is in the midst of fierce international conflicts, showing it as the "king of risk aversion". The important characteristics of gold as a "safe haven".
Gold Price Rises Sharply
The gold market, which is sensitive to geopolitics, is favored by funds because of its safe-haven properties and investment targets, including gold-related stocks, gold ETFs, and gold futures, which have received capital inflows. Previously, on February 24, the international gold price rose to $1,975.7, was up $65 on that day. By March 2, the international gold price remained near $1,900 per ounce. In February, the international gold price rose 5.8%, the largest single-month gain since May 2021.
Data from the World Gold Council show that global central banks have increased their gold holdings by more than 4,500 tons in the last 10years, with total holdings increased by 15% to about 36,000 tons by September 2021 compared to 10 years ago, increasing to the highest level in 31 years. In contrast to the rising gold reserves, the presence of the U.S. dollar is declining, and the shares of foreign exchange reserves in global currencies has fallen to its lowest level in 25 years and have fallen below 60% for the first time.
Looking specifically at Russia, the country has been selling and cutting back significantly on U.S. debt since early 2018. The U.S. Treasury's percentage of debt held by Russian investors fell from a high of 4.2% in 2009 to 0% by the end of 2021, according to the U.S. Treasury Department. The share of gold in the Russian central bank's foreign exchange reserves has risen to 22%.
Gold price volatility may increase, but most people remain prediction bullish.
Due to the overlapping of various factors, the institution's judgment on the trend of gold in 2022 has produced a huge divergence. But the main impact factors mainly focused on two aspects: First is the strength of the Fed's interest rate increases due to the severe inflation situation in the United States. The market generally predicts that the number of interest rate increases this year will be in four parts:
25 basis points each time, if the rate increases exceed these two indicators, will form a strong suppression of gold prices; secondly, the relevant geopolitical friction, especially the United States' involvement, tends to have a positive impact on gold prices.
According to leading gold analysts, the gold's future price trend is confusing. Gold was predicted to be between $1,700 and $1,900 an ounce in a wide range of oscillations. However, more pessimistic predictions have since appeared that suggest it will fall through the $1,700 level. With the changing global situation, gold has suddenly become the “meat and potatoes” of investments. However, we believe that for the time being, gold is rebounding temporarily and advice clients to adopt a short-term strategy until international situations stabilize. Once they do, we expect a larger pullback.
But The Gold Market is Still Mostly Bullish
Ping An, the future chief researcher, said in the anti-inflation, risk aversion of the two resonance, gold prices will continue to run on a strong side. The uncertainty of this Russia-Ukraine conflict continues, and Russia-Ukraine tensions through energy prices to strengthen inflationary expectations, boosting gold prices. In addition, the U.S. mid-term elections, the Iran nuclear deal, and other political factors will also constitute support for gold prices.
"Gold prices are bullish in the medium to long term." Senior foreign exchange analysts at the Dongzhi Derivatives Institute believe that the risk aversion premium has begun to show up in gold pricing. The subsequent impact of the Russia-Ukraine issue on gold prices is closely related to whether there are more outbreaks of events beyond expectations. The geopolitical impulse trade in gold will eventually end, but the subsequent risk of stagflation driven by economic fundamentals will remain in the medium and long term.
"Gold prices tend to remain high for several months after an event." Juan Carlos Artigas, head of global research at the World Gold Council (WGC), said historical data shows that gold tends to react positively during tail events associated with major geopolitical crises despite the fact that the prices can be volatile, gold prices tend to remain high for months after the event. In addition, gold has a deep-rooted, highly liquid market with an average daily trading volume of over $120 billion, and small bid-ask spreads. All of these characteristics make gold a sought-after safe-haven asset.
Goldman Sachs points out that the two most important drivers of gold are "worry" (a driver of investment demand) and "wealth" (a driver of emerging market purchasing power). While U.S. real interest rates are usually a barometer of apprehension, their signaling ability fails later in the economic cycle during the monetary stimulus. Instead, the market's assessment of recession risk would be a better indicator of market sentiment. Based on expectations of a slowdown in the U.S. economy and heightened market fears of recession, Goldman Sachs expects additional gold ETF holdings to grow to 300 tons per year by the end of 2022. Meanwhile, emerging market GDP in U.S. dollar terms is expected to grow by 10%, and Goldman Sachs believes gold will be priced at $2,150 per ounce in 12 months.
Gold is Still The Best Safe-Haven Asset
In the international financial markets, gold is known as the best hedge asset, crude oil is known as "black gold", bitcoin is seen by some as "virtual gold", the dollar is also as a more desirable asset, however, in front of a large pool of money, these "safe assets" less in number, and performance is very different.
First, gold is still the ideal safe-haven asset. Gold and the S&P 500 index correlation coefficient of -0.6339, that the gold market and the stock market change in the opposite direction, that is, when the stock rise gold prices fell, the stock fell when the price of gold rise. With volatility of 0.81%, gold has strong stability and its returns are higher than the major stock markets.
Second, crude oil has a good hedge function, with a correlation of -0.7630 to the S&P 500 and a return of 19.52% despite higher volatility. However, crude oil prices reflect the particular circumstances of the international energy crisis and geopolitical factors, and this period may not be replicated. In terms of correlation and returns, it would be unwise to hold dollars.
Finally, bitcoin, which is seen as comparable to gold by some of the biggest names in the investment industry, disappoints and does not hold value. When tech stocks are in a downturn, the celebrity effect (e.g. Elon Musk) diminishes and the correlation between bitcoin and the S&P is 0.6758, with both markets moving in the same direction: bitcoin prices move in the same direction as the stock market rhythm. From January 3 to February 25, bitcoin fell 15.09%, which is slightly higher than the Nasdaq. On top of that, bitcoin has high volatility and should not be used as a safe-haven asset.
CXM Direct Offers you the Best Gold Advantage
The excellent safe-haven function of gold, the unstoppable upward momentum in its price recently, and the increasing volatility in the recent weeks provide traders with numerous good trading opportunities. The low cost, reliable platform and high-quality investment product are the prerequisites for grasping gold investment opportunities.
Gold CFD products have always been the proud star product of CXM Direct, and CXM Direct Gold CFD products adopt the T+0 trading mode to speed up the investment cycle with no position limits and no redemption restriction period. Investors have good opportunities to make profits in both the long and short term. At the same time, CXM Direct Gold CFD products are available for trading anytime, anywhere, 24 hours a day, so investors will not miss the moment of a major news impact.
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CXM Direct gold CFD products offer high leverage, which increases the utilization of investors' capital. CXM Direct, with its deep liquidity pool and advanced quoting technology, obtains the lowest quotes in the industry for our clients. While CXM Direct's advanced technical support and hardware equipment allow our price refresh and order execution speed to reach International cutting-edge standards, investors' orders are fulfilled at light speed and without trading restrictions.
With excellent advantages, ultra-low costs, two-way trading support, open and transparent prices, lightning-fast order execution, no trading restrictions, and many buffs, CXM Direct is undoubtedly the best choice for your investment in gold products!
