Soochow: The global trend of central bank currency anchor shifts has begun. There is ample room for the price of gold to rise.

Soochow released a research report stating that the central bank's buying spree has become the foundation of the current gold buying spree. According to the global gold buying situation from 2022 to 2024, most countries or entities buying gold are emerging economies, with a low proportion of gold in their reserve assets, indicating that there is still ample room for gold buying. The underlying theme of this round of the market also comes from the decline in US dollar credit. Currently, the US economy is also facing stagflation, providing some potential guidance: during the gold bull market caused by the lack of US dollar credit and stagflation in the 1970s, the percentage of US gold reserves to federal government debt by market value increased significantly from 3.1% in 1971 to 16.4% in 1980; by the end of 2024, this indicator is 1.9%, indicating that the trend of global central banks shifting anchor currencies has begun, and there is ample room for gold price increases. Soochow's main points are as follows: Point 1: In this round of the market, the financial attributes cannot explain the weak correlation between gold and real interest rates, signaling the opening of an era where sovereign currencies anchor diversified assets - gold as "sovereign insurance." In traditional gold pricing models, gold can be viewed as a "zero-coupon bond," and US Treasury real interest rates to some extent act as the opportunity cost of holding gold. However, in this round of the market, the negative correlation between gold prices and real interest rates has not been effectively reflected. Currently, central banks around the world are transitioning from "gold reserve dominance" to "US Treasury reserve dominance" and then to "diversified assets as the anchor." The central bank's buying spree has become the foundation of this round of gold buying spree. According to the global gold buying situation from 2022 to 2024, most countries or entities buying gold are emerging economies, with a low proportion of gold in their reserve assets, indicating that there is still ample room for gold buying. Point 2: Scenario analysis of the potential emergence of the Trump 2.0 era - "Mar-a-Lago Agreement" and revaluation of US Department of the Treasury gold reserves. 1) The revaluation of the US Department of the Treasury's gold reserves could create about $8.781 trillion in assets for its balance sheet, used to address some of the deficit and US debt dilemmas. According to the Federal Reserve Act, the issuance of currency by the Federal Reserve (i.e. balance sheet expansion) requires matching assets, with over 90% of US Treasury and MBS bonds occupying this space, with the rest being gold certificates and the like. The current book value of the US Department of the Treasury's gold reserves is based on the statutory price of $42.22 per ounce left over from the 1973 Bretton Woods system, while the current market price of gold has surged to over $3,400 per ounce. A revaluation could create about $8.781 trillion in assets for the Treasury Department, used as collateral for the Federal Reserve to reduce the need for issuing US debt. 2) The "Mar-a-Lago Agreement" aligns with the two core political demands of Trump's government, with gold as the ultimate beneficiary. The core contents of the "Mar-a-Lago Agreement" include debt restructuring and US debt substitution, US dollar depreciation and exchange rate coordination, tariff imposition and trade camp delineation, sovereign wealth fund and asset revaluation, sharing of security costs and geopolitical maneuvering. Whether through a downward trend in long-term interest rates or the arduous execution of "century bonds," measures like tariffs or revaluation of gold reserves will all benefit gold in the end. Point 3: Constructing a gold pricing framework from the perspective of debt, there is ample room for gold price increases. 1) This round of the gold bull market bears high similarity to that of the 1970s. The foundation of the gold bull market from 1970 to 1980 was formed by the collapse of the Bretton Woods system and the prolonged stagflation economy, with a high degree of similarity to the macro framework of the current gold bull market: the US's "monetary + fiscal" dual easing policy during the pandemic has intensified the snowball effect of US debt; the normalization of conflicts in Ukraine, Russia, and the Middle East has significantly increased risk aversion, while the resurgence of trade wars has provided conditions for supply shocks. 2) The underlying theme of this round of the market also comes from the decline in US dollar credit. Currently, the US economy is also facing stagflation, providing some potential guidance: during the gold bull market caused by the lack of US dollar credit and stagflation in the 1970s, the percentage of US gold reserves to federal government debt by market value increased significantly from 3.1% in 1971 to 16.4% in 1980; by the end of 2024, this indicator is 1.9%, indicating that the trend of global central banks shifting anchor currencies has begun, and there is ample room for gold price increases. Investment strategy 1) Looking at gold and its correlation with major asset classes from an asset allocation perspective. The correlation between gold and equity assets and non-precious metal commodity markets is low, effectively reducing the volatility of asset portfolios; the correlation between gold and major asset classes will fluctuate due to market risks, effectively improving the Sharpe ratio of asset portfolios. 2) Due to the difference in duration, the commodity market and the stock market will exhibit different strengths and weaknesses in stages. In left-side trading, stock trends are often stronger than commodity trends; while in right-side trading, stock trends are often weaker than commodities, primarily due to the different durations of the two. The current window is ideal for positioning in anticipation of US inflation. Risk warning Intensified market competition; geopolitical risks; risks of inefficient policy transmission by the new US government; uncertainty risks regarding the independence of the Federal Reserve.