Is the price of gold limitless? Behind the scenes of the latest record high updates, what are the reasons?
On September 19, the Federal Open Market Committee (FOMC) of the USA decided on a significant 0.5% interest rate cut. However, uncertainty in the US dollar caused world gold prices to rise. Amid escalating tensions between Israel and Hezbollah in the Middle East, there seems to be a sharp increase in safe-haven demand for gold. In the Asian time zone on September 25 (Wednesday), $XAU/USD (XAUUSD.CFD)$rose to a temporary high of $2670.57 and set a new record once again. In the afternoon of the same day, the price of gold turned downwards, reaching $2656.51 per ounce. It marks a pace of nearly 1.8% increase over the past week.
Is there a correlation between the price of gold and the scale of U.S. debt? According to the chart compiled by moomoo, the price of gold shows a similar fluctuation trend to the historical U.S. fiscal deficit as a percentage of GDP.
From the late 1970s to the early 1980s
During this period, the US economy experienced severe recession, characterized by high inflation rates and fiscal deficits. Due to the oil shock in the late 1970s and subsequent economic downturn, the scale of US debt increased rapidly. At the same time, the price of gold significantly increased. Since the abandonment of the gold standard, the price of gold has been freely fluctuating. The demand for gold as a "safe haven asset" increased due to inflation and economic instability, leading to a sharp increase in its value. In 1980, the US fiscal deficit reached about 2.7% of GDP. In the same year, the price of gold reached its all-time high, temporarily hitting 1 troy ounce = $850.
During this period, the US economy experienced severe recession, characterized by high inflation rates and fiscal deficits. Due to the oil shock in the late 1970s and subsequent economic downturn, the scale of US debt increased rapidly. At the same time, the price of gold significantly increased. Since the abandonment of the gold standard, the price of gold has been freely fluctuating. The demand for gold as a "safe haven asset" increased due to inflation and economic instability, leading to a sharp increase in its value. In 1980, the US fiscal deficit reached about 2.7% of GDP. In the same year, the price of gold reached its all-time high, temporarily hitting 1 troy ounce = $850.
From 2001 to 2011
Over the 10 years since 2001, the US government's debt has notably increased. In particular, the 2008 global financial crisis led to large-scale economic measures being implemented for banks and other financial institutions, resulting in a sharp expansion of the US fiscal deficit. It reached around 9.8% and 8.6% in 2009 and 2010, respectively. During the same period, the price of gold rose while fluctuating, reaching its peak around 2011. This phenomenon is believed to be due to investors seeking safe-haven assets in anticipation of currency devaluation and economic uncertainty.
Over the 10 years since 2001, the US government's debt has notably increased. In particular, the 2008 global financial crisis led to large-scale economic measures being implemented for banks and other financial institutions, resulting in a sharp expansion of the US fiscal deficit. It reached around 9.8% and 8.6% in 2009 and 2010, respectively. During the same period, the price of gold rose while fluctuating, reaching its peak around 2011. This phenomenon is believed to be due to investors seeking safe-haven assets in anticipation of currency devaluation and economic uncertainty.
The era of COVID-19 from 2020
Due to the spread of the novel coronavirus, countries around the world, including the United States, have almost simultaneously carried out large-scale fiscal expenditures and monetary easing. The estimated global fiscal support scale by the IMF reached 16 trillion US dollars after the pandemic outbreak, with the United States alone providing 5 trillion US dollars in support. As a result, the US deficit reached the highest level since World War II. The US fiscal deficit in 2020 surged to about 15% of GDP, hitting approximately 15% of GDP. The price of gold in the same year rose from $1500 per troy ounce at the beginning of the year to $2073 in the middle, reaching a record high. The massive economic measures and inflation expectations further stimulated the demand for gold, pushing up its price.
Due to the spread of the novel coronavirus, countries around the world, including the United States, have almost simultaneously carried out large-scale fiscal expenditures and monetary easing. The estimated global fiscal support scale by the IMF reached 16 trillion US dollars after the pandemic outbreak, with the United States alone providing 5 trillion US dollars in support. As a result, the US deficit reached the highest level since World War II. The US fiscal deficit in 2020 surged to about 15% of GDP, hitting approximately 15% of GDP. The price of gold in the same year rose from $1500 per troy ounce at the beginning of the year to $2073 in the middle, reaching a record high. The massive economic measures and inflation expectations further stimulated the demand for gold, pushing up its price.
On Wednesday, September 25th during Asian trading hours, the gold price briefly rose to $2670.57, once again hitting a record high. It has risen by 28.79% over the past year.
According to the Congressional Budget Office (CBO) fiscal outlook released on June 18, the estimated size of the fiscal deficit for fiscal year 2024 (until September 30) was raised from the $1.507 trillion projected in February to $1.915 trillion. Excluding the pandemic period of the novel coronavirus, it will be the worst deficit on record. What will happen to the gold price in response?
Saxo Bank is believed to be deeply concerned about the uncertainty of the US presidential election in November affecting fiscal policy and market stability. "Both parties are unlikely to implement austerity fiscal policies during economic slowdowns, which would increase inflation risks and be positive for gold," the statement said.
Economist Peter Schiff announced this view on X (formerly Twitter) on the 23rd. "Gold has once again hit a record high, but investors are hardly interested. While Bitcoin receives a lot of attention, investors are not only overlooking the rise in gold prices but also failing to recognize its importance. Gold is warning of excessively loose monetary policy and rising inflation."
According to a Reuters report on September 17, Goldman Sachs analyst stated, "We reconfirm our long gold trade recommendation and the price target of $2700 per ounce by early 2025." According to the bank's model, ETF holdings have been gradually increasing for about 6 months after interest rate cuts, which is expected to further support gold prices.
Source: moomoo, Reuters, Bloomberg, minkabu
This article uses auto-translation in some parts.
moomoo News - Alicia
This article uses auto-translation in some parts.
moomoo News - Alicia
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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