Buying Gold At $3000: A Dangerous Game Of Asymmetric Risk And Reward
On the night of March 13, COMEX gold futures were the first to break the $3000 per ounce mark.
LME spot gold prices rose to a high of $2990.23, and it seems almost certain that international gold prices will soon surpass $3000.
A set of data previously disclosed by the China Gold Association is quite interesting.
In 2024, the annual average price of London spot gold increased by 22.97%, while domestic gold jewelry consumption fell by 24.69%. However, consumption of gold bars and coins, which have investment attributes, rose by 24.54% year-on-year. Faced with the continuous rise in gold prices, the demand structure in the domestic market has undergone significant changes.
However, for gold, which has risen by nearly $1000 in just over a year, the "cost-effectiveness" of investment aimed at preserving and increasing value is rapidly declining, and it is no longer suitable for ordinary people to continue investing.
Unlike other commodities, gold possesses both commodity and financial attributes, making its pricing model very complex and influenced by numerous factors.
Geopolitical events, Federal Reserve monetary policy, fluctuations in the US dollar, interest rate trends, inflation trends, central bank gold purchases, changes in institutional positions, and even the price ratios between gold and commodities like crude oil and copper all impact gold price fluctuations.
At the same time, the dominant logic behind gold price movements varies at different market stages, and even professional investors cannot accurately predict the direction of gold prices.
On the other hand, ordinary investors lack professional knowledge and have insufficient understanding of the macro market. Their investment channels are also relatively limited. Apart from purchasing physical gold through banks and gold shops, few can master specialized financial tools like futures and options, making it difficult to lock in and hedge their investment risks.
This inherently makes ordinary investors "natural" gold bulls. To some extent, this is similar to ordinary investors buying A-shares, where they can only profit from price differences when gold prices and stock prices rise, representing a typical one-way long position.
However, seasoned stock market investors know that the purchase price of a stock directly determines the level of investment risk and return.
Let's do a simple calculation. Suppose a stock rises from $10 to $20. Investors who bought at $10 can achieve a 100% return, while those who bought at $15 see their maximum return drop to 33%. If bought at $18 and sold at $20, the profit is only 10%.
This principle also applies to ordinary people investing in gold bars. The higher the international gold price rises, the lower the potential investment return, and the greater the risk of a price drop.
In traditional Chinese thinking, people are accustomed to the value-preserving and value-increasing functions of gold. However, no commodity can rise indefinitely, and gold is no exception.
Looking back at the price trends of London gold since 1970, there have been at least three significant downturns, ranging from two to twenty years.
From 1981 to 2020, although the price of London gold fluctuated, it was generally in a downward cycle. The price peaked at $589.75 per ounce in 1980, then halved to $284.5 per ounce in 1985. From 1988 to 1992, gold experienced five consecutive years of negative returns.
The most recent systemic decline was from 2013 to 2015, during which the price of gold fell by about 42% over three years.
Of course, the past does not predict the future, and no one can predict how high international gold prices will rise this time-whether to $3500 or $4000.
What is relatively certain is that to reap the benefits of further gold price increases, one must bear uncertain time costs and the risk of losses as high as 40%. Is this still a worthwhile investment for the average person?
