Young people start taking loans to speculate on gold

CNY 990/gram! This is the jewelry gold price announced by the jewelry brand CHOW TAI FOOK early on April 11, setting a new historical high. In just two days, it surged nearly CNY 60/gram, even the well-experienced CHOW TAI FOOK staff couldn't help but exclaim: It's too crazy.

The jewelry gold price is just one step away from breaking CNY 1,000, while the 999.9 pure gold jewelry price of the Saturday Fortune brand has already taken the lead, listed at CNY 1,010/gram.

The historical high in gold jewelry prices is backed by a deep "V" reversal in international gold prices: from April 3 to April 7, international gold prices plummeted for three consecutive trading days, with a cumulative drop of 7.08%; however, from April 8 to April 11, gold prices quickly rebounded, reaching a new historical high of USD 3,263/ounce. The Shanghai Gold Exchange quoted prices also rose from CNY 703/gram at the opening on April 7 to CNY 762/gram, an increase of nearly CNY 60/gram in five days, with a rise of about 8.40%.

Such volatility is not common in the gold market. International investment banks like Goldman Sachs and UBS have further raised their price expectations for gold.

Investor enthusiasm for gold has surged, with some even taking out loans to speculate on gold, attempting to seize the "historical opportunity" in gold, experiencing extreme reversals from huge losses to significant gains in just five days.

Is the sharp drop in gold due to stock losses?

Before the sharp rebound and new historical high, gold had just experienced a rapid decline.

On April 3 and April 4, U.S. stocks suffered consecutive heavy losses, evaporating a total market value of about USD 6.6 trillion (approximately CNY 48 trillion), and the market capitalization of the "Tech Seven" (referring to Apple, Microsoft, Amazon, Tesla, Meta, NVIDIA, and Google) also evaporated USD 1.8 trillion (approximately CNY 13 trillion). Global assets were dragged down, resulting in a bloodbath.

Gold, regarded as a "safe haven," was not spared. On April 2, COMEX gold briefly touched the USD 3,200/ounce mark. However, during the three trading days from April 3 to April 7, gold prices fell from USD 3,196.6/ounce to USD 2,973.6/ounce, a cumulative drop of 6.98%, with a decline of USD 23/ounce over three days.

Due to the Qingming Festival holiday, the domestic market experienced a lag in price adjustments. On April 7, at the opening, the Shanghai Gold Exchange quoted gold prices briefly dropped to CNY 703.3/gram, followed by a rebound, closing at CNY 713/gram.

(International gold price trends this year, screenshot from Wind)

Why did the "safe haven" temporarily fail?

"Gold has good liquidity, making it easy for investors to sell, and there are profits that can be used to cover other asset losses, such as stock losses, in a 'margin call.' On April 4 and in the following days, we also observed a shift in North American gold ETFs from inflows to selling "The head of research for the China region at the World Gold Council, Jia Shuchang, pointed out that despite ongoing uncertainties, investors are still turning to gold, which has safe-haven attributes, especially as the volatility of U.S. Treasury bonds has surged, leading the market to support a rebound in gold.

The Financial Times reported, citing informed sources, that Wall Street banks are requiring their hedge fund clients to provide more funds as collateral for loans because the value of the assets they hold has declined. This is the largest margin call issued by several major banks to clients since the pandemic began in early 2020.

Investors should have flocked to gold as a safe-haven asset, but currently, preserving existing assets has become more urgent. As a highly liquid asset, gold is being sold off more rapidly at this time.

Similar situations have occurred in the past. Jia Shuchang mentioned that historical records show that when significant financial market volatility occurs, especially during downturns, gold also fluctuates but with relatively smaller amplitude and rebounds faster. A similar decline was witnessed during the global asset sell-off triggered by the outbreak of the pandemic in early 2020, but like this time, gold quickly recovered. Although the current fluctuations in gold are much greater than before, it remains a low-volatility asset compared to other assets.

"This sell-off has created an opportunity to accumulate gold at lower prices," said Mark Haefele, Global Chief Investment Officer at UBS Wealth Management, on April 9.

UBS pointed out that gold has faced selling pressure for two consecutive days, which is not entirely unexpected. During periods of extreme market pressure, investors sometimes sell gold to meet margin calls. UBS believes this sell-off has created an opportunity to build exposure to gold at lower prices, and gold will continue to provide diversification benefits, especially in scenarios involving tariffs, geopolitical tensions, and economic downturns.

Loan-Fueled Gold Traders Experience Roller Coaster Emotions in 5 Days

The V-shaped reversal in gold prices has led gold traders to experience a roller coaster of emotions in just five days.

One investor stated that he recently took out a loan of over 1 million yuan to buy gold. When applying for the loan, the gold price was around 700 yuan per gram, and by the time the loan was approved, the price had risen to 736 yuan per gram, but he still immediately purchased 1,500 grams of gold.

Subsequently, as the gold price rose to 740 yuan per gram, he bought another 200 grams. Unexpectedly, the price quickly fell. On April 7, the 1,700 grams of gold purchased with the loan had already incurred a loss of over 40,000 yuan, and in just five days, he felt he had "lost everything."

"It's too late to regret; I have to pay the price for my recklessness," he admitted, stating that he had a "gamble" mentality and advised, "Don't learn from me."

However, with the rapid rebound in gold prices, the investor's position turned profitable on April 10. He had increased his holdings when the price fell, and by April 11, his 2,300 grams of gold had gained over 70,000 yuan.

Another investor shared that he bought 1,000 grams of gold at 746 yuan per gram, but the sharp decline in gold prices caused him to lose his composure, and he ultimately liquidated his position at 714 yuan per gram, incurring a loss of over 30,000 yuan More and more investors are beginning to believe that gold only goes up in the long term, and even if there are pullbacks, it will always bounce back. As a result, they are leveraging their investments in gold through loans, credit cards, and other means.

"A friend of mine took out a 300,000 yuan three-year consumer loan, paying interest first and principal later. He believes that gold will continue to rise, and he can always earn back the interest," a financial institution representative said. On social media, stories of making a fortune by bottom-fishing in gold always attract envious onlookers.

A customer manager from a city commercial bank in South China pointed out that loans or credit cards have designated purposes such as business or consumption and cannot be used for investment and financial management, including but not limited to investment-grade precious metals like gold, stocks, and funds. If the risk control system detects this, there is a risk of early loan recovery or trading restrictions.

However, she also admitted that consumer loans are paid by users autonomously, making it difficult to control the flow of funds.

The credit card center of Industrial Bank recently issued a notice reminding that trading gold through credit cards violates credit card usage regulations. If fluctuations in gold prices lead to losses, cardholders must bear the costs such as price differences and handling fees themselves, and may incur overdraft interest and negative credit records due to overdue repayments.

Xu Zhiyan, assistant general manager of Huaan Fund and gold ETF fund manager, stated that the impressive performance of gold in recent years is the result of many macroeconomic factors, including the Federal Reserve starting a rate-cutting cycle and a significant increase in global central bank gold purchasing demand after 2022. However, the current market uncertainty continues to rise, and the increased volatility of gold cannot be ignored. He suggests that investors pay attention to the medium- to long-term allocation value of gold, as allocating a certain proportion of gold in an asset portfolio can effectively reduce volatility risk.

Jia Shuchang also stated that all assets have their ups and downs, and gold is no exception. He calls on investors to invest rationally and to view gold's role in reducing risk and enhancing returns in an investment portfolio with a longer-term perspective, advising against using excessively high leverage for short-term speculation.

Trust in Dollar Assets Damaged, Goldman Sachs and UBS Raise Gold Price Expectations Again

In just three days, gold prices rebounded over 9%, not only erasing the previous days' losses but also reaching a new historical high. Since the beginning of this year, domestic gold prices have risen by 24.5%, soon catching up with last year's total increase of 27.87%.

Xu Zhiyan pointed out that the recent rapid rebound in global assets is backed by a recovery in tariff policies and a alleviation of the previous liquidity crisis, with most asset prices, including gold, returning to their original trajectories.

Due to the volatility of overseas policies, trust in dollar assets has been significantly damaged, leading to a rare situation where U.S. stocks, bonds, and currencies all declined simultaneously. The rise in gold is supported by safe-haven demand, reflected in central bank gold purchases and net inflows into global gold ETFs. Therefore, the medium- to long-term trend for gold is still expected to continue.

Eswar Prasad, a professor at Cornell University and former head of the IMF's China Division, has pointed out in his research that during economic crises, people prefer to allocate their assets safely. He was shocked to find that after experiencing a global economic crisis, the status of the dollar not only did not weaken but became stronger. The main reason is that the dollar has become one of the few safe-haven choices for investors However, at present, with significant uncertainty in tariff policies and increasing market concerns about the downward pressure on the U.S. economy, the attractiveness of U.S. dollar assets is declining.

Renowned economist and CEO of Huafu Securities International, Hong Hao, stated that against the backdrop of the market losing confidence in traditional safe-haven assets like the U.S. dollar and U.S. Treasuries, trend investors will continue to believe that the bull market for gold is far from over. Despite recent fluctuations in gold prices, these movements are merely insignificant ripples in the long river of history.

Jia Shuchang previously pointed out that the main factors driving the significant rise in gold prices this year are geopolitical risks and economic policy uncertainty; additionally, momentum factors are also important driving forces. Whether it is the net inflow of global gold ETFs or the substantial increase in net long positions of COMEX managed funds, both have amplified the upward trend in gold prices.

The latest statistics from the World Gold Council show that in March, global physical gold ETFs saw a strong inflow of approximately $8.6 billion, pushing the total inflow for the first quarter to $21 billion (226 tons), marking the second-highest quarterly record in history. Notably, North America led significantly.

Central banks around the world have become an important supporting force driving gold demand and price increases in recent years, and this force continues to persist.

In 2022, global central bank gold purchases reached 1,080 tons, setting a historical record over the past 55 years. The net gold purchases by central banks have exceeded 1,000 tons for three consecutive years. Central banks value gold primarily for its safety, as it carries no default risk, followed by liquidity and returns, allowing them to buy and sell gold without distorting its price. In recent years, many central banks have also been downplaying their reliance on the U.S. dollar, diversifying their reserve assets.

The presence of the People's Bank of China is also quite prominent in this context. Official reserve assets from the People's Bank of China indicate that in March, the central bank increased its gold holdings by 90,000 ounces. As of the end of March, the central bank held 73.7 million ounces of gold, and since the start of the current accumulation action in November 2022, the People's Bank of China has cumulatively increased its gold holdings by 1.106 million ounces. Based on the latest price of $3,260 per ounce, the total value amounts to $36.056 billion (approximately 263.6 billion RMB).

With the strong rebound in gold prices, Wall Street investment banks are once again bullish on gold.

On April 14, UBS raised its gold price forecast again, from $2,850 per ounce at the beginning of the year to $3,500 per ounce. This marks UBS's fourth adjustment to its gold price forecast this year, citing that ongoing tariff and geopolitical risks may negatively impact the economic outlook for the U.S. and the world.

Goldman Sachs also raised its target price for gold at the end of 2025 from $3,300 per ounce to $3,700 per ounce just three days ago, primarily due to stronger-than-expected central bank gold demand, and under expectations of interest rate cuts by the Federal Reserve and concerns about economic recession, inflows into gold ETFs may accelerate.

Author of this article: Xiao Wang, Source: Prism, Original title: "Young People Start Borrowing to Speculate on Gold | Prism" Risk Warning and Disclaimer

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