Guest Introduction: Cao Luli, Fund manager of Fuguo Fund
Recent gold prices continue to rise, how to see the value of gold investment? Does the short-term gold price still have room to rise? Why are gold prices diverging at home and abroad? How do ordinary investors invest in gold? In this regard, Cao Luli of the Rich Country Fund shares wonderful views with you.
Cao Luli said that in the recent period of time, gold has risen very well, yuan denominated gold has risen better, and the trend of dollar denominated gold is relatively flat. Although it is all gold, overseas commodity gold has not risen much, and domestic commodity gold has risen, because of the problem of pricing currency.
It pointed out that Shanghai gold is not only affected by the global gold price, but also affected by the exchange rate, split it: one is the gold price itself, to see if there is the possibility of continuing to rise, and from the exchange rate, it has the possibility of continuing to rise. From the current point of view, the short-term Shanghai gold price rise may be a little weak. There are many ways to invest in gold in the market at present, including physical gold, gold shares, Shanghai Gold ETF link, etc., and the third is the most convenient, but also the industry will generally choose to invest in gold.
Here are the highlights:
1. Cao Luli, Rich Country Fund: The price of gold in RMB continues to rise
Question: There are many kinds of gold pricing methods, there are US dollar pricing and there are RMB pricing, the recent divergence between the two pricing methods of gold prices, what is the reason?
Cao Luli: Recently, gold has risen very well, but if you look at it specifically, you will find that the gold denominated in RMB has risen better, and the trend of gold denominated in US dollar is relatively flat. Although it is all gold, overseas commodity gold has not risen much, and domestic commodity gold has risen, because of the problem of pricing currency.
Recent domestic gold has risen well, the core reason is the depreciation of the renminbi relative to the US dollar. We often say that if we go abroad to spend RMB this year, it is very uneconomical, so gold is the same.
Another big reason is that the yuan exchange rate contained in the gold price may be lower, which means that people who trade gold may be relatively more conservative with the yuan exchange rate.
Of course, it is not only Chinese gold that has recently risen in price, but also Japanese gold, Australian gold and other gold prices denominated in their respective national currencies have risen very well in the recent period of time.
Exchange rates of all countries are expected to depreciate relative to the dollar. Not only is the RMB depreciating compared to the US dollar exchange rate, but the exchange rates of various countries are depreciating relative to the US dollar, so it is not the economic problems of various countries behind it, nor is it the problem of our economy or exchange rate, but because the US dollar has been too strong in the recent period of time.
Behind this is the strength of the dollar. Why are people so bullish on the dollar these days? The core is that the inflation in the United States in the second half of the year may still be at a relatively high level, while the Federal Reserve's statement is still hawkish, so no matter from which point of view, the dollar has been strong in the recent period of time, so at this time, no matter which country's currency, relative to the dollar has shown a certain depreciation.
The RMB may be expected to depreciate relative to the US dollar, but the RMB is relatively appreciated relative to other countries' currencies, so the core is still the strong expectation of the US dollar brought about by everyone's optimism about the US economy.
2, Rich Country fund Cao Luli: Shanghai gold price rise short-term weakness
Q: What is Shanghai gold? Is gold still divided into regions?
Cao Luli: In the beginning, we often said London gold, Britain is the empire on which the sun never sets. At that time, Britain was the most powerful country in the world, and sterling and gold were directly priced. Because gold is the oldest currency and the hardest currency, all national currencies may need to have a certain exchange relationship with gold at the beginning before the market will recognize the value of the currency.
So at the beginning, London gold is the most recognized thing in the market, but with the development of our economy, in the gold market, China is one of the largest countries in demand, and the supply is also in a relatively high position.
In such a market environment, China's demand is the highest, the supply is not low, China should have a certain degree of dominance in the price of gold, so we launched the Shanghai gold standard London gold, to a certain extent, we have to fight for a certain degree of gold pricing power, which will promote the internationalization of RMB.
Shanghai gold is the price of all gold bought in China can be called Shanghai gold, behind which is pure physical gold. But it is not priced in the same way as overseas gold, including London gold, which is denominated in dollars, and Shanghai gold, which is denominated in yuan. Shanghai gold may not be heard of, but when you go to the gold store to buy jewelry, the prices you see are called Shanghai gold prices.
So when the dollar is worth more, gold goes down. But when the dollar's credibility suffers a certain collapse, the price of gold rises.
How to find out if the dollar is worth anything? Money has an interest rate, money deposited in the bank, itself will generate interest.
One of the easiest ways to do this is to look at real interest rates in the United States, and if they're going up, that means the dollar is worth more, and that's when gold goes down. But when the dollar's real interest rate goes down, that means the dollar is worth less, and gold is worth more. So simply put, gold has a negative correlation with real interest rates in the United States.
So as long as the United States raises interest rates, gold has a high probability of poor performance, but in the United States last year, while raising interest rates, inflation is particularly high, so the two fight, the price of gold will trend more stable.
The core reason why the market is optimistic about gold this year is that the Federal Reserve has raised interest rates at the beginning of the year, and we can expect that the Federal Reserve will stop raising interest rates and start cutting interest rates, and once the Federal Reserve enters the interest rate cut range, it is the time when the gold bull market opens.
To sum up, the gold price movement is centered on three factors:
The first is to look at current global risk appetite. For example, when there is war, or when there is an extreme black swan event fermentation, the gold price is better;
The second is the level of inflation in the US or the world. If inflation is high, it is good for gold;
The third is to look at the real interest rate in the United States, or simply to look at the Federal Reserve's operation of raising and lowering interest rates. When the Federal Reserve raises interest rates, it is best not to touch gold, when the Federal Reserve cuts interest rates or increases interest rates to the highest, when the market expects to start cutting interest rates, it may be the time when the gold bull market opens.
Question: Combining these three factors, is now a good time to get on the Shanghai Gold?
Cao Luli: Shanghai gold is not only affected by the global gold price, but also by the exchange rate, so we break it down here. One is the gold price itself, to see if it has the possibility of continuing to go up, and the other is whether it has the possibility of continuing to go up from the exchange rate.
I think from the current point of view, the short-term Shanghai gold price rise may be a little weak.
First, in terms of exchange rate, the implied US dollar exchange rate in RMB denominated gold has reached 7.6, which is much higher than the current actual exchange rate. We can see that the exchange rate expectation in gold denominated is too pessimistic.
We are confident about the current RMB exchange rate. On the one hand, various signals of the domestic economy show that the economy has bottomed out and picked up. On the other hand, the central bank of China continues to attach importance to and maintain the stability of the RMB exchange rate.
In addition to exchange rate expectations, the existence of arbitrage mechanisms means that yuan-denominated gold cannot always be more expensive than dollar-denominated gold.
From the perspective of gold itself, it will also face some challenges in the short term, the core reason is that inflation in the United States is still high, and the latest inflation in August is slightly more than expected, which may lead to the Federal Reserve to delay the time to start cutting interest rates, so it also destroys a logic of the recent rise in gold.
However, in the medium and long term, the Federal Reserve cannot raise interest rates forever, and the interest rate of US bonds has reached a very high level. And if interest rates stay high, the pressure on the economy will be strong. So when the Federal Reserve makes the decision to raise interest rates, it will not only look at inflation, but also look at the situation of the US economy. The current US economy does have some resilience, but the market expects that the US economy will decline next year under high interest rates.
Next year, the Fed may not only pause in interest rate hikes, but may also enter the path of interest rate cuts. Looking back at history, the day the Fed decided to pause interest rate hikes, gold prices have risen rapidly, up to the first two or three times the Fed cut rates, gold prices have risen.
So at present, we need to be cautious about the gold price in the short term, but once the gold price falls in the medium and long term, there are better allocation opportunities.
3, Cao Luli, Rich Country Fund: Gold ETF or the first choice for investment in gold
Question: Can you give us an inventory, what are the mainstream ways to invest in gold?
Cao Luli: There are many ways to invest in gold in the market. The first is to go to the gold store to buy gold jewelry, or to the bank to buy physical gold at home.
The second is gold stocks. When the price of gold rises, the general gold stock may also have a certain rise.
The third is to go to the bank to buy paper gold, but in the last two years paper gold is in a restricted state.
The fourth and simplest way is to buy gold through the Shanghai Gold ETF. Excluding paper gold, which is currently restricted, let's take a look at the first three ways to invest in gold: physical gold, gold stocks, and Shanghai Gold ETF Connect. What is the difference between these three approaches?
The first physical gold, I think if you just invest, you want to hold a physical gold in your hand and look at it and enjoy that feeling. Or if you are afraid of some relatively large risks and want to take a hard currency in your hand, physical gold is appropriate at this time.
But if you just want to make a short-term swing investment, physical gold is not suitable. The price of gold in the gold store is still relatively expensive, such as the price of Shanghai gold ETF is 460-470 yuan/gram, and the price of physical gold is basically 580-600 yuan/gram.
This includes both brand premium and processing fees. Physical gold is not cost-effective if it is simply an investment. Even if it is a gold bar, the basic price of physical gold will be increased by about 10 yuan per gram. And when you sell physical gold in the future, you may have to sell it at a discount, and you may have to pay testing fees and so on.
Of course, physical gold has one advantage, that is, it can be worn as jewelry, which gold bars, Shanghai gold ETF, gold shares, etc., can not be done.
Apart from physical gold, would it be better to invest in gold stocks? The pricing of gold stocks is a bit more complicated and not necessarily tied to the price of gold.
When the price of gold rises, gold stocks do not necessarily rise, which is related to the market of A-shares and the fundamentals of the company. For example, from August 2022 to February 2023, although the gold price rose by 7%, gold stocks did not rise much, so the price trend of gold stocks is not necessarily completely related to the gold price. For example, the recent market sentiment is not good, although the Shanghai gold itself is rising, gold stocks really do not necessarily rise.
For example, considering the Federal Reserve's interest rate hike, exchange rate factors, etc., the conclusion is that Shanghai gold can rise, and then you go to buy a gold share, you will find that the Shanghai gold you analyze has risen, but the gold shares you buy do not rise, and may fall. If you do not have a lot of research on the fundamentals of gold companies, it is not recommended that you use this way to invest in gold. And the third is the most convenient, but also our industry will choose to invest in gold, is to buy Shanghai gold ETF link.