Gold ETFs Soar Nearly 30% in a "Golden Era

The spot price of gold continues to hit new highs, with a year-to-date increase of 32%, having already surpassed the expectations set by various institutions at the beginning of this year. As a result, many institutions have had to raise their "benchmark" prices for gold spot, with several believing that $3,000 per ounce is no longer a dream, and some even projecting the price to reach $3,100 per ounce in the first quarter of next year.

In tandem with the rising gold market, the fundamentals of related stocks have continued to strengthen, and the net value of related thematic ETFs has also been setting new highs. As of October 28th, the year-to-date increase for several gold-linked ETFs exceeded 28%, with the largest increase being the Gold ETF (159934) at 29.67%, followed by the Gold ETF Fund (159937) with a 29.53% increase.

Gold ETFs Soar This Year

On October 28th, the latest statistics from the China Gold Association showed that in the first three quarters of 2024, domestic raw gold production was 268.068 tons, a reduction of 3.180 tons compared to the same period in 2023, a year-on-year decrease of 1.17%. Among this, gold produced from mining was 209.710 tons, and gold produced as a byproduct from non-ferrous metals was 58.358 tons. Additionally, in the first three quarters of 2024, 111.207 tons of imported raw material gold were produced, a year-on-year increase of 15.51%. If this imported raw material gold is included, the total national gold production was 379.275 tons, a year-on-year increase of 3.20%.

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In the first three quarters, the national gold consumption was 741.732 tons, a decrease of 11.18% compared to the same period in 2023. Among this, gold jewelry consumption was 400.038 tons, a year-on-year decrease of 27.53%; gold bars and coins consumption was 282.721 tons, a year-on-year increase of 27.14%; and industrial and other gold uses were 58.973 tons, a year-on-year decrease of 2.78%.

The China Gold Association stated that in the first three quarters, the gold price has been rising steadily, significantly affecting gold jewelry consumption. The rapid development of new e-commerce models such as live streaming and instant retail has driven the growth in consumption of small-weight gold jewelry. "In the third quarter, the continued high volatility and increased expectations of gold price increases led to a decline in physical gold consumption, but overall, the consumption of gold bars and coins, which have relatively lower premiums, still managed to maintain a significant growth in the first three quarters."

In the first three quarters, driven by expectations of rising gold prices, the domestic gold ETF holdings increased to 91.39 tons, an increase of 29.93 tons compared to the end of 2023, a growth rate of 48.69%. In the first three quarters, central banks around the world continued to increase their gold holdings, with Turkey, India, Poland, the Czech Republic, and Iraq being among the countries with the largest increases in reserves. China's gold reserves did not change in the third quarter, and as of the end of September, China's gold reserves remained at 2264.33 tons.

At the same time, domestic gold-linked ETFs have also had impressive gains this year. According to statistics from Tonghuashun, the increase in gold-linked ETFs this year is basically around 28%, with the largest increase being the Gold ETF (159934) at 29.67%; followed by the Gold ETF Fund (159937) with a 29.53% increase.

However, amidst the "frenzied" rise in gold, regulators have also warned investors to be aware of risks. Recently, the Shanghai Gold Exchange issued a notice stating that the recent significant increase in precious metal price volatility has led to a noticeable escalation in market risks, reminding investors to take risk prevention measures, control positions reasonably, and invest rationally.

This is already the second time the Shanghai Gold Exchange has warned about the risks of gold trading recently. Prior to this, several banks also indicated that gold is currently at a high level, and investors should be alert to price retracements and manage risks and positions well.At the same time, the world's largest gold ETF, SPDR, has also experienced a divergence between position and price. While the gold price has been "soaring," the position has decreased, with the latest holding at 889.78 tons, reducing for two consecutive trading days out of the last three. Previously, its holdings had reached 895.24 tons, and the market once thought it would challenge the historical threshold of 900 tons, but for now, it still seems to be a challenge.

Is $3,000 not a dream?

Recently, the gold price has risen "ridiculously," not only setting new highs repeatedly but also diverging from the trends of the US dollar and oil prices. Deutsche Bank stated that gold has performed exceptionally strong, even far exceeding the valuations of traditional models, with the largest excess since 1998.

Morgan Stanley even developed a new regression model to measure changes in the gold price. In the new regression model, Morgan Stanley included multiple parameter factors such as ETF flows, central bank reserves, Consumer Price Index (CPI), US Dollar Index (DXY), global risk index, and net futures positions, significantly improving the model's fit.

Due to the expanding increase, several institutions have had to raise their outlook for gold again. In a recent report, UBS (UBS) raised its gold price forecast, expecting the gold price to approach $2,800 per ounce by the end of 2024 and climb to $3,000 per ounce in 2025. This increase reflects the widespread demand for gold in the market, with no significant signs of selling pressure.

UBS's optimistic forecast is supported by multiple macroeconomic factors. According to UBS, not only the Federal Reserve but also other central banks around the world are implementing monetary easing policies, which will create a favorable environment for gold purchases. At the same time, UBS has listed gold as the "top priority" asset in its global strategy.

Bloomberg Intelligence Senior Commodity Strategist Mike McGlone believes that hedge funds will drive the gold price to $3,000 per ounce.

Goldman Sachs has also recently raised its forecast for gold, increasing next year's gold price expectation from $2,686 per ounce to $2,973 per ounce. According to Morgan Stanley's new model calculation, it may probe $3,100 per ounce in the first quarter of next year.

Tang Linmin, a senior researcher at China International Futures Co., Ltd., said in an interview with a reporter that the recent consecutive new highs in gold prices are mainly influenced by the market's expectations for the Federal Reserve's interest rate cuts to stabilize and geopolitical factors. Looking at the former, at the beginning of October, the US September non-farm data "reversed the cold" compared to the July data, and the market's expectations for the Federal Reserve's interest rate cuts plummeted. Not only did the previously hot "50 basis points cut in November" expectation completely disappear, but some institutions even expected "no cut in November." Recently, market expectations have gradually rebounded and formed a concentrated balance point at "a 25 basis point cut in November," creating a good basic condition for the gold price to rise. Looking at the latter, on one hand, the recent continuous tension in the Middle East has stimulated the rise of gold.

The latest data from CME's "FedWatch" shows that the probability of the Federal Reserve cutting interest rates by 25 basis points in November is 97.7%, and the probability of maintaining the current interest rate is 2.3%; the probability of maintaining the current interest rate in December is 0.6%, the cumulative probability of cutting interest rates by 25 basis points is 27.7%, and the cumulative probability of cutting interest rates by 50 basis points is 71.7%. It can be seen that the market has "given up hope" on the Federal Reserve cutting interest rates by 50 basis points in November.