What we Do Not Know Behind Gold Price?

 

The global economy is already in the doldrums with Iran, Israel, and Hamaz tension over and above the Russia and Ukraine war. Commodity prices are set to increase and hence inflation increase cannot be nullified. Simultaneously as inflation goes up the forward outlook for interest rates will get reduced from 3 to 2 or maybe one from the U.S Fed. This will have a huge impact on reprising the equity valuations across the globe and hence new pricing outlooks will emerge in the coming days. Equity correction is bound to happen and hence it creates an opportunity for India to invest in the long term. Further many interest-sensitive sectors where the forward projection was that their earnings will grow as ROI falls will now get wait and watch mode and analysts will readjust the allocations in those sectors compared to what was envisaged previously.  On the other hand, healthy monsoon expectations for India followed by Mr. Modi getting his third term gives immense hope for long-term stability and progressive growth for India. The world now needs leaders like Mr. Modi so he can play a dynamic role in this global turmoil. Fear of COLD WAR Behind Gold The current rally in Gold has taken a good piece of mind of every investor across the globe and followed with this current geopolitical tension the value of the same will grow more.  However what I did not find in any media or research report that the actual reason for Gold being purchased in huge quantities by China and by the Big Central Banks. Well, it’s clear that what they envisage the rest of the world witness the same way later. The old school of thought of high inflation and hedging is now very old. The secrets behind the actions of the World’s Largest investors are often disguised and they can envisage those things which others cannot do. ·       Mr. Donald is going to contest for Presidential election in the U.S. Now his first election was influenced by Russia as per the media sources.  ·       When an election like the U.S. President happens one knows how much the same is being influenced by every country, by every billionaire, and by every powerful person on earth.  If he is going to win this time, then the same has been gauged by China and Russia. ·I  Readers will also accept that a character like Mr. Doland Trump is the need of the hour compared to any other person. Hence if he comes he will start the activities of the Trade war and will get manufacturing jobs out of China and many others. ·       If you remember the last time the same thing happened Gold went for a huge jump similar to the current one. ·       China has been reducing its U.S. treasuries and has now held 797.7 billion U.S. dollars in U.S. securities. In 2010 China had $3 trillion U.S Treasuries.   ·       If once again Mr. Donald Trum is back and Trade War 2.0 begins then many sanctions might be imposed which will create more problems for China, hence safe flight of exit is better now. ·       Trade war will push up inflation, and will change the supply chain, and hence that might be another reason why the U.S. economy is also not keen on reducing rates. ·       Another war funding preparation might be under the table which leads to huge buying of Gold and restricted actions on interest rates. But on the other hand, it has invested in Gold very aggressively. The PBC has been adding to its gold reserves for the past 16 months in a row, according to the World Gold Council. In 2023, the PBC bought more gold than all other central banks.  China’s central bank made its largest annual purchase in 2023 since 1977. China's purchases of the precious metal last year at 225 metric tons, roughly a quarter of the 1,037 tons bought by all the world's central banks. China's central bank now holds roughly 2,257 tons of gold in its vaults. Now why the central banks are buying Gold is also due to the expectation of geopolitical tensions and any Trade war escalation in 2025. Well, the price of Gold will jump significantly in the coming years mostly once the trade war bugle is blown. The currency will also react based on the geopolitical situations and will also impact the equities and other asset classes which will further push the price of Gold to new highs. Hence the current price is cheap based on upcoming predictions. Further, as China’s real estate and equity markets both are in the doldrums it's better to invest in gold and recoup the losses from this asset class in the coming years. Very clever act by China. On the other hand, global equity markets are at an all-time high, and any geopolitical shocks will get them down hence moving inflows from debt and equities into Gold is a safe option in every bad situation.  Once the interest rates start coming down China and its people could use Gold to pledge and increase consumption growth when in 2025 the situation might be worse for China or for the world. The Gold prices are currently much discounted if we compare with the unforeseen events expected to erupt starting from war to trade war.  Obviously, if we take the upcoming 5 years from now one will find that the global economy lacks leadership and this creates intense pressure on geo-political matters.