What is the benefit of gold during the high inflation period?

Among the many metals, gold is the only alternative -other metals such as copper, iron, aluminum, zinc, etc. are mainly used for industrial and manufacturing purposes. Only because the price of gold is high, its functions are often preserved rather than industrial. Therefore, theoretically, the cycle of gold price should be greater different from other metals, and even the price correlation between gold prices and other metals should actually be negative. However, because all goods in the international market are quoted at the US dollar, the correlation between the prices of different commodities has increased because of the US exchange.

Figure 1: The performance of the US dollar gold price in the 1970s (1970 to 1980)

Text | Special Analyst Li Dafeng, Commodity Discovery

This article is an original article of China Gold Network. The content is for reference only, and does not constitute operating suggestions or investment guidelines.

Therefore, we must understand the recent metal price trend, be sure to understand the dollar first. As a global leading currency, the performance of the US dollar can often be "anti -wisdom". For example, in the 2008 global financial crisis, the US economy had a big problem. Based on the currency exchange rate of a country, it was equivalent to a company's stock. If the economic problems in the UK, Europe or Singapore, the local currency of these countries would inevitably have a significant depreciation. But only the US dollar/the United States is the only exception.

When the economic recession fund is busy selling asset cash, it means that the demand for cash increases, and because the US dollar is the leader of global currency, cash is inevitable during cash, and the demand for the US dollar has increased sharply. Similarly, this year's global stock market has been cleaned. As a result, the demand for cash/USD has increased sharply. Therefore, the initial increase in the price of commodity prices and accelerating the recent rapid decline.

Recently, the price of commodities has fallen sharply. In addition to the rapid rise of the US dollar, it is more because the investment market believes that the global economy is not stagnant, but is related to the shrinking economic recession. At present, the U.S. inflation rate is more than 8 %, but some people still buy national bonds with an average annual return of less than 4 %. Step into a shrinking instead of stagflation/high inflation).

The investment market believes that in order to fight inflation, the interest rate will never increase interest rates until the inflation is killed. However, the global debt level is now at a high level, and the rate of interest rates will eventually lead to the economic situation (recession), and interest rate hikes will reduce demand, which will eventually lead to decline in commodity prices.

But they ignored the fact that the main cause of the global high inflation this time was the problem of supply. Even though the overseas country economy wants to return to the new crown pneumonia's epidemic, in fact, the price of global tickets is still getting more and more expensive (because the flight/staff is insufficient), which reflects that logistics obstacles are heavy. On the other hand, the production costs of mining companies have increased in the case of lack of raw materials and people.

According to the data provided by the management of various overseas gold companies, the cost of gold comprehensive production in the first quarter of this year increased by more than 10 % year -on -year, and even though no data was released in the second quarter, the reflection of diesel was basically increased by 30 % year -on -year. The average increase of miners' wages increased by 10 %, and this did not only happen in the gold mining industry, but also other minerals and other industries.

The cost of commodity rose but the price was declined due to the influence of the futures market. As a result, there was only one, that is, the future supply of the commodity will be reduced, resulting in inflation.

The author believes that gold is a tool against inflation. First of all, the inflation is as good or bad like cholesterol -if the inflation caused by economic growth, the economy of the United States and China began to grow healthy in the 1990s, even if there was inflation at that time, but due The demand for insurance is weak, so the price of gold is often in a bear market during the period when the economy has healthy inflation (1980 to 2000).

On the contrary, the high inflation is obviously not due to the results of good economic growth, but a problem with the supply side and the logistics chain. In fact, the direction of this global high inflation crisis is very simple, that is, to increase the supply of mines and open up logistics as soon as possible. However, senior Federal Reserve said that in fact, the Federal Reserve can only do interest rate hikes, and the impact of interest rate hikes on inflation is actually limited. On the other hand, governments around the world are lacking money, which is increasing various mineral taxes and resource taxes, and raw materials costs.

At present, battery production bases are under construction. It may take two years to build a battery production plant, but a lithium raw material project may take 6 years or more from exploration to production. Some of these reasons are because government officials are delayed in order to win the votes of environmental protection people, which causes many mining projects to pass through multi -layer environmental protection requirements.

Therefore, even though most of the investment community believes that the world will face deflation, other people and the media generally believe that the world will enter stagnation. The latter compared the stagnation of the 1970s with the current stagnation. At that time, it was really similar to the current environment: inflation heated up in the 1970s, mainly due to the fourth Ayi conflict, which caused the Middle East oil production country At that time, oil prices rose from $ 3 per barrel to $ 12. In fact, the economic cycle, like human history, always occurs again in a similar form.

From the stagflation period of the 1970s (1970 to 1980), the performance of the US dollar gold price (Figure 1) can be found that from the $ 37.38/ounce in 1970, to the $ 589.5/ounce at the end of 1980, the accumulation of gold prices accumulated It was nearly 79 times. However, due to the historical issues and the historical reasons of gold prices, we should not expect that the price of gold can be over 70 times in the next 10 years. But at the same time, it is necessary to consider that no matter the base of the global currency or the debt level, it is much larger than that year. Figure 2: In the era of stagflation, comparison of stocks and mobile assets in different industries

Looking at the period of stagflation, comparison of stocks and mobile assets in different industries (Figure 2) can be found that because stagflation is generally driven by energy prices, energy stocks are generally the best performance; due to high oil prices Mao profit, so precious metal stocks are only the second place, but their value -preserving functions also have players, and for ordinary retail investors, precious metals are easier to collect more than energy.

The most powerful empirical controversy in the prospects of high inflation is that the stock god Buffett has continuously bought the upstream energy stock Occidental Petroleum in the near future. According to the latest data, Buffett already holds 18.7 % of Western Petroleum Corporation. If Buffett thinks that the world will enter the shrinking in the future, do you think he will still suck crude oil stocks?

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