What will be the future trend of this gold bull market?

Author: Chen Daotian

This round of gold bull market has lasted from the beginning of 2024 to the present, with prices rising from $2,000 per ounce to $4,000 (unit: US dollars/ounce, the same below). After nearly two years of rapid rise, gold prices suddenly fell sharply on October 21, with the largest correction reaching nearly 10% by October 31. What are the reasons for this round of gold bull market, and what is the future trend? This article will examine four hypotheses about gold prices and analyze future price trends.

How much do you know about gold?

According to data from the World Gold Council, the total amount of gold in existence worldwide in 2024 was 216,000 tons.

According to data from the World Gold Council, the total amount of gold in existence worldwide in 2024 was 216,000 tons.

As can be seen from the above discussion, the gold hedging hypothesis is the most effective and has a basis in price theory, while the safe-haven hypothesis, the dollar hypothesis, and the real interest rate hypothesis are not very strong. In the above discussion, the author also theoretically discussed the reason for the "stickiness" of gold prices as being "useless". In summary, the author believes that the hedging hypothesis is the basis of gold pricing, while the other hypotheses provide narratives for gold price fluctuations at different times. Considering that the current gold price has once again significantly surpassed the US CPI, the author believes that the gold price is already in a high-risk range. How much it can rise further in the short term depends on the strength of the various narratives. The recent rise in gold prices has also been affected by the asset structure adjustments of some major central banks around the world. Many central banks continue to convert dollar assets into gold, which provides new impetus and narratives for the rise in gold prices. Gold's bull and bear markets before 2012 were exceptionally long, but these were due to specific factors. For example, the major bull market from 1970 to 1979 was largely due to the severe undervaluation of gold caused by decades of fixed prices, coupled with the fear of inflation in the 1970s. The bull market from 2003 to 2012 was because gold had been "dormant" for 20 years. After 2013, the frequency of gold bull and bear market cycles increased, and gold prices did not lag significantly behind inflation for an extended period. I believe that the current gold bull market has essentially completed its "value repair." As for various narratives acting as catalysts, I can say with certainty that a dollar crisis will not occur. The market has almost completely failed to grasp that the Federal Reserve's massive quantitative easing during 2020-2021, and the high inflation of 2022, increased rather than decreased the US debt burden—a powerful refutation of the "money printing to reduce debt" hypothesis. Surprisingly, many market participants have ignored the overwhelming evidence at hand. The sharp correction in gold prices since late October, while difficult to definitively call a turning point in this gold bull market, has sent a warning signal to investors that deserves serious consideration. Keynes said that people's obsession with gold is a remnant of a barbaric era, and I wholeheartedly agree. At least from the perspective of macroeconomic research, gold is not important. From the perspective of macroeconomic risk and margin of safety, I would not buy gold at present.