The Israel-Hamas conflict has triggered demand for safe-haven assets in the capital markets, intensifying the rise in gold prices.
On April 16, the price of gold briefly surpassed $2,400 per ounce. On April 18, during the Asian market session, spot gold surged by over $15 within the day, maintaining a strong upward trend with the price of around $2,376 per ounce.
Will Gold Shine in 2024?
Factors contributing to the continuous gold price surge include persistent inflation in the United States, the Federal Reserve’s repeat postponing of interest rate cuts, potential anti-dumping wars by the United States and the European Union in response to China’s dumping of cheap electric vehicles, as well as turbulent factors from the Russia-Ukraine war, Middle East conflicts, and geopolitical risks in the South China Sea and Taiwan Strait.The latest U.S. CPI for March shows a year-on-year increase of 3.5 percent, exceeding the market expectation and reaching a new high since September 2023.
Regarding whether the Federal Reserve can cut interest rates this summer, Federal Reserve Chairman Jerome Powell said that “recent data have clearly not given us greater confidence” that inflation is coming fully under control, yet “instead indicate that it’s likely to take longer than expected to achieve that confidence.”
In addition, geopolitical risks are pushing up the price of gold. On April 13, Iran launched a large-scale air strike against Israel, rapidly escalating the already tense situation in the Middle East. With market observers closely watching the possible response actions Israel may take, the uncertainty in the Middle East further fuels demand for safe-haven assets like gold.
It is worth noting that the CCP plays a big role in the current geopolitical conflicts in the world, from the tensions in the South China Sea and Taiwan Strait to the support of Iran and Russia.
On April 15, while defending his push for the approval of $95 billion in new military aid for Ukraine, Israel, and other American allies, House Speaker, Mike Johnson (R-La.) said, “I believe that Xi, Putin, and Iran are truly the axis of evil. I think they are coordinating their actions.”
This is the second time a senior U.S. official formally designated the CCP as part of the Axis of Evil.
On April 19, William Burns, Director of the Central Intelligence Agency, stated that the U.S.-China competition goes beyond the ideological and military rivalry during the Cold War.
Mr. Burns believed Xi was “determined in the course of his political lifetime to control Taiwan.”
CCP the Major Driver of Gold Price Surge
Whenever geopolitical conflict or economic crisis emerges, international funds tend to flow into gold for hedging. In the second half of 2023, gold began to show a continuous upward trend, breaking through $2,100 per ounce for the first time on Dec. 4, 2023.On Dec. 5, 2023, Juan Carlos Artigas, Global Research Head of the World Gold Council, stated at the China (Shanghai) International Gold Investment Forum that over 70 percent of central banks surveyed expected global gold reserves to increase in the next 12 months.
Inflation, geopolitical risks, sanctions risks, and the multipolarization of the global reserve currency system are the main factors driving central banks to buy gold. This trend may continue for years and is expected to further support gold’s performance on traditional drivers, he said.
Data released by the People’s Bank of China on March 7 showed that as of the end of February 2024, China’s gold reserves were 72.58 million ounces (2,257.49 tons), with a monthly increase of 390,000 ounces (12.13 tons). This is the 16th consecutive month that the People’s Bank of China has increased its gold reserves.
Opinions vary on China’s actual gold reserves.
Dominic Frisby, a gold analyst and founder of The Flying Frisby, believes that the official data on China’s gold holdings is far from the actual amount and that China has secretly acquired a large amount of gold that exceeds those of the United States.
Based on the World Gold Council report, as of the end of 2023, the United States had the largest gold reserves, with 8,133 tons, followed by Germany, Italy, France, and Russia. China purchased 215.9 tons of gold in 2023, ranking sixth with reserves of 2,226 tons.
Mr. Frisby explained that China produced about 7,000 tons of gold in the last century.
“More than 50 percent of Chinese gold mining is state-owned, and China does not export any of the gold it produces. So all the gold that China has mined has stayed in China,” he said during an interview with Kitco News at the New Orleans Investment Conference in November 2023.
As for imports, while it is unclear how much gold China imported through Switzerland, Dubai, or London, Mr. Frisby believes that the market can make some estimates.
“We know that a lot of gold that enters China goes through the Shanghai Gold Exchange. And we know that 22,000 tons of gold have been withdrawn from the Shanghai Gold Exchange in this century.”
Mr. Frisby estimates that China holds at least 33,000 tons of gold, with at least half being state-owned.
If China admits to the U.S., “We got twice as much gold as you,’ that’s tantamount to a declaration of war,” he said. “If China goes to war with the U.S., it will weaponize money.”
Gold Price Surge in Troubled Times
Major international events often accompany the surge in gold price, repeatedly confirming the investment hedging rule “purchasing gold in troubled times.”In 1971, the United States announced the decoupling of the U.S. dollar from the gold standard. By the end of 1971, the gold price surged to $43.48 per ounce, a 24 percent increase from the $35 under the Bretton Woods system, marking the first major surge in the price of gold after World War II.
After the 2008 financial crisis in the United States, the price of gold soared, breaking through the $1,000 per ounce mark for the first time.
In 2011, the Federal Reserve announced near-zero interest rate policies and two rounds of quantitative easing policies, which were seen as the decisive factors in the new highs in gold prices. At the time, Europe’s debt issues also contributed to the gold price surge to a new high of $1,925 per ounce.
At the end of 2019, the outbreak of the COVID-19 pandemic and the U.S.-China trade caused the price of gold to hit a new high of $2,075 per ounce in 2020.
In 2022, Russia’s invasion of Ukraine triggered military tensions between Russia and Western countries, causing a surge in market demand for safe havens. The gold price once again rapidly surged and surpassed the $2,000 per ounce mark.
