Is it still a good time to buy gold?

Is it still a good time to invest in gold, which has "skyrocketed"?

This year, gold prices have surged dramatically, rising from $3,000/ounce to $4,000/ounce in just seven months. On October 20, COMEX gold hit a record high of $4,398/ounce, but then plummeted 5.07% the following evening, marking its largest single-day drop since its listing. The downward trend continued, and by October 29, it had fallen below the $4,000/ounce mark, a nearly 10% pullback in eight trading days.

Sad voices are starting to emerge in the market.

According to CME Delta exposure data, approximately 52,000 put option contracts were sold in the $4,000-$3,900 range. There are also rumors that Philippine banks intend to sell gold. Benjamin Diokno, a member of the Central Bank of the Philippines' Monetary Council and former central bank governor, recently stated that their gold holdings account for about 13%, higher than most central banks in Asia. Diokno believes that the ideal gold reserve ratio should be maintained in the 8%-12% range. This statement has been interpreted by the market as a potential signal of reducing holdings, further strengthening bearish sentiment. Has gold really peaked? In conclusion, gold has not yet peaked, but it has passed its explosive growth phase. Gold now is less a tool for making money and more a form of insurance against losses. In the modern fiat currency system, the US dollar's status as the global settlement currency relies not only on its powerful military and financial networks but also on its control over energy pricing. Since all global energy transactions must be settled in US dollars, the petrodollar system is at its core. In 1974, the United States signed a crucial agreement with Saudi Arabia and other major oil-producing countries: all global oil transactions must be settled in US dollars. In exchange, the United States pledged military protection and economic support. From then on, oil became the "new anchor" of the fiat currency era. As long as energy prices are stable, the dollar's credibility remains stable. This is because when energy costs are controllable and production efficiency continues to improve, inflation is unlikely to rise, providing "favorable conditions" for the expansion of the dollar system. In short, if the economy grows rapidly and inflation is low, the returns on dollar-denominated assets can cover the rate of dollar inflation, naturally causing gold to lag behind. This also explains why, at times, gold's price increase has far lagged behind the rate of dollar money printing. The Federal Reserve's balance sheet has expanded nearly ninefold since 2008 (as of the end of 2023), while the price of gold has only increased about 4.6 times during the same period. Conversely, when energy ceases to be a shared efficiency benefit and becomes a strategic resource weaponized by various parties, the physical system that relies on stable, low-priced energy to support the expansion of the US dollar begins to loosen. The dollar's credibility cannot be maintained by low-cost commodities, and gold, as having zero credit risk, naturally attracts capital inflows. This is why gold almost always experiences a bull market whenever there is energy order turmoil or energy cost revaluation. The highest historical increase in gold prices occurred between 1971 and 1980. During this decade, gold prices rose from $35 per ounce to $850 per ounce, an increase of approximately 24 times. Three major events occurred during this period: In 1971, the Bretton Woods system collapsed, the dollar was decoupled from gold, and gold was no longer fixed at $35 per ounce; in 1973, the first oil crisis erupted. After the Middle East wars, OPEC jointly limited production, and oil prices soared from $3 per barrel to $12; in 1979, the Iranian Revolution triggered the second oil crisis, and oil prices surged again to $40. Coincidentally... The period of the second-highest gold price increase in history also coincided with energy imbalances. From 2001 to 2011, gold prices rose from $255/ounce to $1921/ounce, an increase of 650%. Following the bursting of the dot-com bubble in 2000, the US economy entered a recession in 2001. The Federal Reserve was forced to implement significant interest rate cuts starting in January 2001, lowering the federal funds rate from 6.5% to 1% by June 2003. During the same period, the US dollar index fell from 120 to around 85, a drop of approximately 25%, marking the largest depreciation since the introduction of floating exchange rates in 1973. The depreciation of the US dollar directly impacted the reserve value of oil-exporting countries, forcing them to reduce their dependence on the dollar and shift to other currencies for settlement, such as the euro and the renminbi. In 2000, the Central Bank of Iraq announced that oil exports would be priced in euros starting in November 2001 (i.e., "oil euro"). In 2003, Iran also publicly studied the possibility of pricing its "Iranian Crude Oil Exchange" in euros, and subsequently, from 2006 to 2008, Iran officially began accepting payments from European and Asian customers in euros. This trend towards de-dollarization directly affected the energy and financial interests of the United States. The US-led invasion of Iraq in 2003 increased global oil supply risks; from 2004 to 2008, energy demand surged in emerging economies such as China and India. This resulted in oil prices rising from $25/barrel to $147/barrel (mid-2008). Uncontrolled energy costs led to imported inflation, decreased purchasing power of the dollar, and a surge in gold prices. The most recent instance occurred between 2020 and 2022. The COVID-19 pandemic paralyzed supply chains, prompting the Federal Reserve to cut interest rates twice by a total of 150 basis points, returning them to 0-0.25%, and launching unlimited quantitative easing (QE). The Russia-Ukraine conflict triggered a European energy crisis, causing a surge in European natural gas TTF futures and Brent crude oil prices to approach $139/barrel. Gold has once again become a safe haven from systemic risk, with prices rising from $1,500/ounce to $2,070/ounce. Therefore, the rise in gold prices is not only due to excessive money supply, but also a result of the rebalancing of the energy and dollar systems. As mentioned above, in the past few decades, globalization and technological progress have continuously created "negative entropy"—new production capacity, higher efficiency, and wealth accumulation. People are more willing to invest their money in businesses and markets rather than in gold, which does not generate interest. However, once this "negative entropy" supply chain develops cracks, such as due to runaway energy prices, capacity transfer, or technological decoupling, the benefits of new capacity and efficiency will disappear, and the system will shift from "negative entropy" to "entropy increase". (A clever bet: In physics, "entropy" represents the degree of disorder; in economics and the monetary system, it corresponds to efficiency decay, resource waste, and credit dissipation; "negative entropy" means system order, improved production efficiency, and smooth energy circulation; "entropy increase" means rising prices, uncontrolled expectations, the system moving from order to chaos, and the world becoming "bustling but inefficient.") As long as this entropy increase process continues, that is, market efficiency declines and leads to uncontrolled inflation, there will be support for rising gold prices. Currently, market disorder continues. The most direct manifestation is the year-on-year increase in fiscal deficits and monetary expansion, indicating that national credit is being gradually overdrawn. Following the pandemic, global finances have fallen into a cycle of "spending more and more, becoming poorer," with government spending proving difficult to reduce and debt rollover becoming the norm. The US fiscal deficit has consistently exceeded 6% of GDP, and its net debt issuance for the year is projected to surpass $2.2 trillion, while the Federal Reserve's balance sheet, despite undergoing contraction, still stands at several trillion dollars. Other major economies also face unprecedented fiscal pressure in 2025—Japan's debt-to-GDP ratio reaches 250%, the Eurozone's overall fiscal deficit rate reaches 3.4%, exceeding the limit for four consecutive years, with France, Italy, and Spain's deficit rates at 5.5%, 4.8%, and 3.9% respectively, all above the 3% red line. This also explains a seemingly contradictory phenomenon: despite loose monetary policy, global 30-year bond yields have continued to rise, mainly due to market concerns about high future inflation and governments' inability to effectively control fiscal deficits, leading them to demand higher compensation for long-term risks. In fact, this high debt situation is difficult to reverse. Because in the new round of global technological competition, countries are strengthening fiscal spending to maintain strategic investment. Especially for China and the United States, AI has become the most crucial element in their competition. In its recent "Document No. 15," China has clearly stated that technological innovation, emerging industries, and new-quality productivity are the key breakthroughs for China to achieve a "leapfrog development." This means that science and technology and advanced manufacturing are not merely industry issues, but core competitiveness within a national strategy. In this strategic competition, the United States also has its own policy stance. On July 23, 2025, the US government released "Winning the Race: America’s AI Action Plan," positioning AI as a core intersection of technology, industry, and national security, and explicitly proposing to accelerate the construction of data centers, chip manufacturing, and infrastructure. Therefore, both China and the US will inevitably dedicate their national resources to developing AI, and fiscal spending is unlikely to shrink, meaning government debt will continue to increase. In addition, resource and supply chain restructuring is also driving up costs. For decades, the world economy relied on efficient global division of labor and stable energy supplies, with production in East Asia, consumption in Europe and America, and settlements primarily conducted within the US dollar system. However, this model is now being impacted by geopolitical frictions, supply chain decoupling, and carbon neutrality policies, making resource flows increasingly difficult. The cost of cross-border transportation for a single chip, a ton of copper, or a barrel of oil is rising. As geopolitical conflict becomes the new normal, countries are increasing defense spending and stockpiling energy, food, and rare metals. The US military budget has reached a new high, Europe is restarting its military-industrial complex, and Japan has passed its "Defense Capability Enhancement Plan." When military spending and strategic stockpiles encroach on fiscal space, governments are more inclined to raise funds through monetization, resulting in a decline in real interest rates and a decrease in the opportunity cost of gold (because gold is a non-interest-bearing asset), thus increasing its relative returns. When monetary expansion no longer creates wealth and energy flows become politicized, gold can return to the center of the monetary system because it is the only physical asset simultaneously accepted during wars and credit crises, requiring no credit backing and not dependent on any resources. Clearly, the long-term bullish logic for gold is sound, but don't allocate gold using old strategies. In the past, gold was primarily seen as an investment tool, but at this point, gold has only one allocation logic: a hedging tool, especially for hedging against stock market risks. Take gold ETFs as an example. The annualized returns from 2022 to 2025 were 9.42%, 16.61%, 27.54%, and 47.66% respectively, showing increasingly attractive returns. The driving forces behind this can be summarized in three points: First, central banks began to gradually accumulate gold reserves. Data from the International Gold and Silver Association shows that since 2022, global central bank gold purchasing behavior has undergone a qualitative change. Purchases jumped from an average of 400-500 tons per year to over 1000 tons for the first time in 2022, and have remained at a high level for several years. In 2024, global central bank net gold purchases reached 1136 tons, the second highest level in history. This means that central banks have transformed from ordinary participants in the gold market into key forces influencing pricing, altering the original pricing logic of gold to some extent, such as weakening the negative correlation between gold prices and the real yield of US Treasury bonds. Secondly, frequent geopolitical conflicts. Events such as the Russia-Ukraine conflict and tensions in the Middle East have not only directly stimulated risk aversion but also strengthened the long-term motivation of central banks to purchase gold. As a "stateless asset," gold naturally possesses advantages in terms of safe-haven assets and liquidity, gaining favor with funds in an environment of frequent risk events. Thirdly, the Federal Reserve's policy shift. In July 2024, the Federal Reserve ended its two-year rate hike cycle and began cutting rates in September. Interest rate cuts directly benefit gold in two ways: first, they reduce the opportunity cost of holding gold; second, they are usually accompanied by a weaker dollar, which benefits gold priced in dollars. The long-term logic for gold remains solid—central banks are still buying, global structural risks have not been eliminated, and the dollar's credit cycle is still in a period of adjustment. However, in the short term, the driving forces propelling gold prices sharply upward are weakening. Future gold price increases may be more moderate and rational. While these factors still exist, their marginal impact is actually diminishing. The trend of central bank gold purchases is expected to continue (95% of surveyed central banks plan to continue increasing their holdings over the next 12 months). However, the pace of purchases may become more flexible due to gold prices being at historically high levels. Geopolitical uncertainty has become the new normal, which will continue to provide safe-haven support, but the market's "sensitivity" to individual events may decrease due to habit. Furthermore, the market has already priced in the Fed's loose monetary policy, and the positive effect of interest rate cuts may not be as strong as before and after the start of the interest rate cut cycle. From an allocation perspective, if investors expect gold to continue delivering substantial returns from 2022 to 2025, the probability is actually quite low. It's more accurate to say that gold prices are far from peaking, and Goldman Sachs has even raised its 2026 gold price forecast to $4,900 per ounce. However, the future upward slope of gold prices will not be as steep as before, especially given the current relatively loose liquidity and high market risk appetite. Risk assets (stocks, commodities, cryptocurrencies, and futures/options, etc.) offer greater opportunities and are more likely to generate high returns. It's important to note that risk assets rise quickly but also fall sharply. The biggest risk to the stock market right now comes from macroeconomic uncertainties, such as escalating US-China trade frictions, geopolitical conflicts, or a US economic recession. Once these "gray rhinos" materialize, risky assets will inevitably face significant corrections, and funds will flow into safe-haven assets, with gold being the most representative. Conversely, when these risks improve marginally, gold prices may correct, but risky assets will rebound. For example, the recent sharp drop in gold prices was triggered by a sudden cooling of the safe-haven logic. Therefore, gold can form a perfect hedging relationship with risky assets (especially the stock market). Overall, gold has not yet peaked, but it has passed its explosive growth phase. The role of gold in investment portfolios should shift from "high-yield asset" to "hedging tool". When the stock market fluctuates, gold acts as a safety net. But how should ordinary people allocate their gold holdings? The most common methods include physical gold bars, gold ETFs, and gold accumulation, each with its advantages and disadvantages. However, with the introduction of new gold tax policies, the advantages of gold ETFs have become apparent. The Ministry of Finance and the State Taxation Administration issued the "Announcement on Relevant Tax Policies for Gold" on November 1st, clarifying the new tax regulations for gold transactions from November 1, 2025 to December 31, 2027. If you buy physical gold through non-exchange channels (not through the Shanghai Gold Exchange), the cost will be significantly higher because these transactions are subject to value-added tax (VAT), incurring a 13% VAT cost. Merchants will likely pass this premium on to consumers. ETFs, on the other hand, are "financial products" and continue to be exempt from VAT. Coupled with their high liquidity and transparent costs, their transaction cost advantage is further amplified. In terms of investment strategy, we recommend investors focus on buying on dips and avoid chasing highs. It's also crucial to remember: In a volatile market, gold is not a tool for making money, but rather a tool for protecting wealth.