The story of gold, when will the East believe, and when will the West believe?

The price of gold has once again hit a record high, with its crazy trend in the past two months even leaving Wall Street's professional investment bank UBS at a loss. After considering traditional factors such as the US dollar exchange rate and real interest rates, UBS found that the classic gold pricing model can no longer explain the current absurd market situation.

Many people have noticed that behind the surge in gold prices, there is a mysterious and powerful force from the East that keeps injecting. The People's Bank of China has been increasing its gold reserves for the seventeenth consecutive month, becoming the largest buyer among central banks. China has also surpassed India to become the world's largest consumer of gold jewelry.

A research report released by Guotai Junan on Wednesday pointed out that the People's Bank of China and gold ETFs are the driving forces behind this round of market trends. Over the past year and a half, the People's Bank of China's continuous gold purchases have led to large-scale net inflows into Chinese gold ETFs, while gold ETFs in other countries have experienced net outflows during the same period.

If the East has already embraced the story of gold, when will this belief spread to the West?

Robert Minter, Chief Investment Strategist at Aberdeen Asset Management, stated in a media interview that European and American investors have not changed their indifferent attitude towards gold despite the surge in gold prices. However, they have not taken action to suppress the rise in gold prices, and the selling of gold ETFs has almost come to a halt. This means that the current upward trend in gold prices is expected to continue.

Minter also predicts that the historical high of gold prices exceeding $2350 per ounce is just the beginning. With more retail investors from Europe and America pouring into gold ETFs, the next round of significant increase in gold prices is only a matter of time.

As Minter made the above comments, an important milestone was reached by Aberdeen's gold ETF. Last week, the assets under management of the Abrdn Physical Gold Shares ETF surpassed $3 billion for the first time.

Although investment demand is still somewhat subdued, Minter stated that gold investors should be reassured that at least the selling of gold ETFs has almost come to a stop.

Since April 2022, ETF investors have sold about 750 tons of gold, creating a significant supply in the market, while on the other hand, central banks have had record demand for the past two years.

Minter pointed out that central bank demand has not disappeared, and with ETF selling at a minimum, the supply of gold in the market has dried up. Although central bank gold purchases have slowed in recent weeks, the overall trend of official purchases is still on the rise He also said:

If you are a cautious central bank fund manager in some countries, in order to reduce risks, you will shift from the US dollar to other assets, which is as simple as that.

When will the West embrace gold again? Just waiting for the Fed to cut interest rates?

Minter believes that Western investors may be waiting for the Fed to cut interest rates.

Last week, many regional Fed presidents expressed new views, but they still tacitly remained cautious about starting the next easing cycle. Some members of the monetary policy committee directly stated that given the high inflation, they do not support interest rate cuts.

The specific timing of the Fed's easing cycle remains unclear, but in Minter's view, interest rate cuts are inevitable, considering the historically high credit card debt, comprehensive rise in insurance premiums, and out-of-control government debt, the US economy cannot sustain interest rates staying in a restrictive range for a long time.

Minter said:

The Fed has made enough mistakes in the past three years. I think they are very cautious and do not want to make mistakes again.

As the chairman, Powell must understand the impact of a sharp rate hike on the economy in a short period of time. This type of monetary policy usually breaks some things in the economy at a structural level, and Powell must take remedial measures very quickly.

Powell certainly will not risk significantly increasing the unemployment rate just to lower the inflation rate in housing by a few percentage points.

Minter believes that even if the Fed does not cut interest rates in the summer, they will do so before the end of the year and start a new easing cycle.

Since holding above the $2000 support level in early February, the spot gold price has risen by 18% cumulatively, hitting a new high for the eighth consecutive trading day on Tuesday.

Minter said that even though the current rally is strong, there is still significant upside potential for the future gold price.

Regardless of the timing or magnitude, the Fed's next move is definitely an interest rate cut. Historically, Fed interest rate cuts in 2000, 2006, and 2018 led to gold price increases of 57%, 235%, and 69%, respectively. Although the gold price has already risen by 18%, this is nothing at all