Why did the gold in the epidemic era suddenly fail?

The U.S. stock market, especially the technology stocks, suffered successive setbacks. In just a few weeks, the Nasdaq index had fallen by more than 10%, evaporating more than US$1.5 trillion in market value. Affected by this, the A-shares collectively “suffered”, and the three major indexes fell sharply. Among them, the ChiNext market was particularly volatile. It continued to fall from its peak of 3,247.44 on January 25, with the highest cumulative decline close to 23%. Although the current global epidemic is under effective control, the world economy in the post-epidemic era is difficult to “epidemic”. The monetary policy of flooding the water has led to rising prices and devaluation of legal currencies, and other issues are imminent. On the other hand, with the effective control of the global epidemic, people’s expectations for economic recovery have come ahead of schedule, but the overheating of the economy will worsen the current inflation.

Why did the gold in the epidemic era suddenly fail?

2021 will be an extraordinary year for the American people and investors all over the world. Former President Trump is keen to save US stocks, and new President Biden has become the new owner of the White House with his resolute determination to fight the epidemic. Two very different governance concepts are also quietly affecting the trend of the global market. On February 5, the U.S. House of Representatives passed the $1.9 trillion economic stimulus plan proposed by Biden’s new administration. The continued loose monetary policy also magnified the capital market’s fear of inflation. , The U.S. 10-year Treasury bond yield continued to break new highs. When everyone felt that the stock market was going to be cold, they still hadn’t waited for the determination to come to the US government to rescue the market. On March 4, Fed Chairman Powell’s statement that “the current market is not risky” has become the driving force of the global stock market collective dive.

Gold has limited hedging ability

In March 2020, U.S. stocks broke four times in a single month. During that time, no investors could sit and live, and what is even more alarming is that gold, which is called hard currency by the public, does not seem to be that way this time. “It’s hard.” On March 9, the U.S. stock market fused for the second time in its history, and it was also the first fuse in 2020. Gold fell sharply and lasted for nearly two weeks. Since August, international gold prices have also continued to fall, and they have not recovered their lost ground so far.

Why did the gold in the epidemic era suddenly fail?

Despite the collective decline in the global market, the safe-haven properties of gold have not been revealed these few times. Throughout history, the US dollar, US stocks, and gold will not move in the same direction at the same time for most of the time. When inflation comes, you need to pay more legal currency to buy the same amount of goods. Everyone will choose to convert the U.S. dollar into gold. The U.S. dollar will become worthless. Under the market demand, gold will continue to rise, and it will be used as a hedge by everyone. Assets are stored. But this time, why didn’t gold work anymore? Fei Er Mining Pool believes that the poor performance of gold this time is directly related to the lack of cash flow in the market and the overall decline in market demand for gold. In the era of the epidemic, whether it is a company, an institution or an individual, the overall income will be significantly reduced, but it is difficult to significantly reduce expenditure. In particular, some companies and institutions have fixed costs such as employee salaries, house leasing, and equipment maintenance, and the demand for cash flow is even more urgent. Compared with selling stocks and funds on hand, institutions are more willing to cash in gold with a relatively limited decline in value in exchange for cash. When a large area of ​​the world collectively sells gold, the supply of gold in the market in a short period of time is more than usual, which leads to an overall decline in the price of gold. On the other hand, the decrease in the demand for goods will also lead to the downward adjustment of prices. During the epidemic, the global economy generally declined. Whether it was industrial production or residential demand, the demand for gold dropped sharply, which further led to the continued decline in gold prices. With the overvaluation of the stock market, the overall sluggishness of gold, and the continued depreciation of legal currencies, institutions can only look for new economic growth points.

Why “traditional” companies enter the market

In March last year, the global market plunged, and cryptocurrencies were also frustrated and plummeted. At that time, short-term investors said that if they fell again, they would return to zero. However, after March 19, the cryptocurrency collectively rebounded and broke through all the way. The popularity has not diminished so far, which has aroused the attention of traditional institutional investors. Investment banks, manufacturing companies, and ordinary people have all entered the cryptocurrency market. At the beginning of February, the US Business Intelligence Corporation Micro-Strategy held a blockchain industry summit with representatives from 16 countries and more than 1,400 companies, sharing with the participants their continued optimism about the future value of cryptocurrencies, and saying that the company has nearly 72,000 bitcoins are worth more than the core business. At the same time, the company plans to issue 600 million US dollars of convertible bonds in early February to purchase bitcoin with net proceeds. Due to the rush of investors, the issuance scale was temporarily expanded to 900 million U.S. dollars, with an optional increase of 150 million U.S. dollars. At the time of delivery on February 19, the actual raised funds exceeded US$1.05 billion.

 

In recent years, there have been numerous investments in cryptocurrencies by traditional companies. But in the opinion of some people, is there a risk of high-level buy-in for entering cryptocurrencies at this time? Fei Er Mining Pool believes that “traditional” companies have a mature risk investment evaluation system for financial investment, and frequent entry of encrypted currencies may be a clearer understanding of the blockchain technology market and the current global financial environment. . First, in recent years, governments of various countries have increasingly faced blockchain technology. Especially in China, as the world’s second economy, the development of blockchain has risen to a national strategic level. In the recent two conferences that have attracted global attention, it is specifically mentioned that the innovation of blockchain technology such as smart contracts, consensus algorithms, encryption algorithms, and distributed systems will be strengthened. The market awareness of blockchain is being fully rolled out. Second, the Federal Reserve as the representative of the central banks of various countries continue to release water, so that the purchasing power of legal currencies such as the US dollar has been reduced year by year. As an institutional enterprise, having too much legal currency is not enough to fight against the shrinkage of assets caused by inflation. Only by replacing them with gold or other safe-haven assets can they ensure that their assets will not shrink significantly. But for now, gold is not the only option to fight inflation, or in other words, it is not the best option. Of course, some investors believe that the high volatility of cryptocurrencies is not suitable as a safe-haven asset. Regarding this statement, other investors have put forward different opinions. The positioning of cryptocurrency itself is not only to act as a medium for commodity trading, nor is it equivalent to a stable currency to open up channels for legal currency and currency exchange, but a high volatility, High-yield long-term value store.

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