Every bull market in gold is actually related to the "monetary trust crisis". Once a strong currency is suspected, gold will quietly rise; when everyone feels that the crisis is about to pass, the gold bull market will come to an end.
From ancient times to the end of the gold standard, gold's purchasing power was surprisingly stable; but once the gold standard disintegrated, gold became more and more valuable, and even outperformed inflation.
But despite the long-term improvement of gold, short-term fluctuations can really scare people. In January 1980, gold was $755 per ounce, and then it fell for 20 years. By the end of 1999, only $280 was left, falling more than 60%.
There was another big drop in 2011, falling from US$1,771 to 1,062 in 2015, a 40% decline.
This kind of ups and downs are not only available in modern times. During the Taiping Xingguo period of the Song Dynasty, one tael of gold could be exchanged for 10,000 coins of copper coins, but after more than 20 years, it could only be exchanged for 3,000 coins, which was depreciated by 70%. But two hundred years later, it can be exchanged for another 40,000 yuan, and gold will appreciate by 12 times.
So when we talk about the golden law, we must first determine: Will humans still need it in the future? If gold is no longer scarce, or no one believes it, all the laws will fail instantly.
Let's talk about scarcity first. Gold is a cosmic "limited version" that comes from supernova explosions and neutron star collisions, and the earth itself cannot produce it. Someone joked: Can you turn mercury into gold? It is feasible in theory, but it is extremely costly and has radiation, which is not realistic at all.
There is indeed a lot of gold hidden deep in the earth, but unfortunately 99% are in the core. Humans currently dig up to 5 kilometers, while the core is below 3,000 kilometers... so don't expect to dig it.
What you really should worry about is whether gold will be replaced? What else is it for?
The ancient gold was able to become a hard currency because the rich and the government had to pay and store value in large quantities. Gold is rare, stable, easy to identify, easy to divide, and there is also a global consensus.
When Wang Mang collapsed, 180 tons of gold were hidden in the treasury - coincidentally, the Roman Empire also had almost this number at the same time.
What about modern people? Large payments will no longer require gold unless they are fled or extreme. Now there is only one core purpose of gold: storage of wealth.
In 2024, in China's gold consumption, jewelry accounted for 532 tons and gold bars and gold coins were 373 tons. Many people buy gold jewelry to preserve their value - the same is true at home and abroad.
But gold has a bad problem: no interest is generated. Deposits, bonds, and stocks can make money, but gold is just "stand-place". Then why do we still hold it?
The state reserves gold because international assets must be well flowed and safe enough. Foreign houses, stocks, and corporate bonds are not reliable, so there are four categories of mainstream reserves: strong country currency/treasury bonds, IMF SDR, gold, and... virtual currencies.
SDR is essentially a currency combination, so there are three types: other countries' currencies, gold, and virtual currencies.
Gold and virtual currencies are both outside the monetary system and can hedge the risks of the monetary system. For example, a major country issuing currency and debts soaring. What should you do with your foreign exchange reserves? If there is another strong country that can be exchanged for currency, it would be fine, but if the situation is unclear, gold is the big brother.
The virtual currency has not yet been reached, and it may not be safe for weak technology countries to use it - a strong country may one day hack into your wallet. Gold doesn't have this problem.
This logic is the same for individuals. Gold is a very small number of assets that break out of the currency system and have a global consensus. Bitcoin also jumped out of the system, but the consensus was far inferior to gold.
So we can be sure: the future of gold is still an important "ballast stone" of wealth.
What are the rules for the rise and fall of gold prices? Many people like to chat about short-term rules, but we have to remind you: Don’t be too serious.
Short-term rule 1: The US dollar falls, gold rises.
Because gold is denominated in US dollars, the "rule" of the US dollar has shrunk, and the gold price number will naturally increase. There is no need to really fall. Everyone thinks that the US dollar is weak and gold will also rise.
Short-term rule 2: US dollar cuts interest rates and gold rises.
Gold has no interest, and the interest rate cut makes the opportunity cost of holding gold lower, and more people will buy it.
Short-term law 3: The international situation is in chaos and gold rises.
"Storing gold in troubled times" is not for nothing. As international relations are tense, the monetary system is suspected, and as soon as the war comes, gold will immediately shine.
These three rules are correct, but if you really use them, you may fail. Because they assume that "other conditions remain unchanged", the real world is always changing.
It's like you push a block of wood, if there is no other force on the ground, it will walk straight. But reality always has friction, wind, slope... So it is easy to make a mistake by just looking at one factor.
What is really useful is the long-term law.
The biggest role of gold is to hedge against the risks of the monetary system. The monetary system is stable, and the gold bear; the monetary system collapses and the gold bull.
Every bull market in gold corresponds to the weakening of strong currencies.
1971–1980 is the first time that the US dollar and gold are decoupled, coupled with hyperinflation;
2003-2011 is the second time, with the Internet bubble, subprime mortgage crisis and European debt crisis hitting the US dollar and the euro continuously;
It's the third time since 2019, what is the motivation?
The mainstream view is that it is a U.S. debt problem.
The fiscal deficit exceeded 4% in 2019 and reached 15.7% in 2020, and it has remained high since then. Problems such as low savings rates for residents and rising consumer loan arrears rates may suddenly trigger the economy.
In addition, I also believe that the "Rise of China" is also quietly shaking the US dollar's position and becoming the hidden driving force for this golden bull market.
So you see, the gold bull market has not yet ended.
But how does gold prices go in the future? What can China seize this wave of opportunity to do?
We will talk about these in detail in the next article.
Remember, gold is old, but realistic.
It does not generate interest, but it produces one thing: a sense of security.
