Daniel Zhang: Strategically bullish on gold until the new order becomes clear

A brief review of our views on gold over the past few years: In December 2023, we firmly proposed a ten-year strategic bullish outlook on gold, and so far we have published four in-depth reports, each addressing market confusion and presenting new frameworks, new indicators, and new thoughts.

Report 1: Strategic Bullish on Gold (December 2023)

From 2020 to 2023, gold hovered around USD 2,000 per ounce for nearly three years. Despite being affected by factors such as the recurring pandemic and changes in U.S. policies, the gold price never broke through the key level of USD 2,050. In December 2023, we published the report “Gold: A Century, A Decade, Next Year”, proposing a ten-year strategic bullish outlook on gold. An important qualitative judgment behind this is that we believe the pulse of global order reconstruction is likely to begin.

We observed that: 1) The Russia-Ukraine conflict had clearly become a non-short-term event by the end of 2023, and the trend of weakening global order and prominent geopolitical contradictions may be difficult to reverse. 2) By the end of 2023, pandemic factors had receded, and the U.S. interest rate hike cycle was basically nearing its end (although the rate hikes were insufficient, they had effectively stopped). We believe that the backdrop at that time was similar to a once-in-a-century global order reconstruction period, characterized by the weakening and reconstruction of global order, rising geopolitical contradictions, and a shock to trust between nations. The emphasis on "security" and strategic hinterland in the 2024 Three Central Meetings has already begun to validate the above logic.

Report 2: Unusual Pricing of Gold (May 2024)

Around May 2024, gold had risen to USD 2,400-2,500 per ounce and hovered around USD 2,400 for three to four months. At that time, with gold prices reaching new highs, the market judged that the subsequent increase in gold prices might be limited based on traditional analytical frameworks (such as real interest rates, U.S. dollar index, etc.).

However, through quantitative research, we found that the three major models that the World Gold Council had used to explain gold prices over the past 20 years deviated in 2023-2024, with explanatory power declining. This phenomenon further validated our December 2023 judgment about order reconstruction—traditional quantitative indicators had failed, and non-traditional factors dominated gold trading. Therefore, our second report “The 'Unusual' Pricing of Gold” addressed the question that traditional ordinary pricing models could no longer fully explain gold prices, and gold might be trading on unusual factors.

Report 3: Price Projection of Gold in Extreme Scenarios (March 2025)

In March 2025, gold reached USD 3,000 per ounce, and the market generally believed that gold prices had peaked. However, we continued to maintain a bullish outlook and published the report “Gold 'Rhapsody'—Price Projection of Gold in Five Extreme Scenarios” in March 2025, hypothesizing five extreme scenarios (such as emerging markets increasing their gold holdings, a collapse of crypto assets leading to a shift of funds to gold, etc.) to conduct an extreme projection of gold price elasticity, primarily to help the market break out of rigid thinking. We believe that the market's understanding of gold's tail elasticity is insufficient, and during a true period of order reconstruction, the upside potential for gold will greatly exceed expectations The prices we propose in this report are not what we consider target prices, but rather an inspiration for the market, indicating that in truly extreme situations (even if these extreme situations only play out 10%), gold prices could far exceed our imagination.

Report 4: Gold Implied Order Reconstruction Index (May 2025)

After March 2025, gold prices rose steadily, breaking through 3200 and 3300, and now reaching the 3300-3400 USD/ounce range. The market is concerned that with current tariffs showing signs of easing, gold prices may have peaked. At this point, we released our fourth report “Gold Implied 'Order Reconstruction' Index: Capturing Trading Signals of Global Order Reconstruction”. We constructed a new analytical tool to explain parts that traditional models cannot account for. The main idea is to first base it on traditional macro pricing models, selecting traditional macro factors such as U.S. inflation, deficit rate, real interest rates, central bank official gold purchases, and the weight of the U.S. dollar in global reserves to fit gold prices from 1974 to 2025. This model can explain 64% of price fluctuations. However, for the 64% that remains unexplained, we believe it implies investors' expectations for the reconstruction of global financial and political orders, including dimensions of technological order, military order, and monetary (U.S. dollar) order, and we extract this unexplained increase separately, defining it as the "Gold Implied Order Reconstruction Index (GIORI)."

Currently, this index is approaching and beginning to exceed the peak of the U.S. dollar order reconstruction after the Bretton Woods system in the 1970s-1980s, which signifies: First, if the bullish logic for gold is solely based on the reconstruction of monetary (wealth) order, then the current increase in gold prices has reached the peak level of the Bretton Woods system, and in the medium term, it may have traded to a relatively extreme position. Second, if the bullish logic for gold is the gradual reconstruction of global technological, military, and wealth orders, then the current rise may still not be over.

We subjectively believe that we are currently in a period of comprehensive reconstruction of global technological, military, and wealth orders, and various uncertainties may still exist in the future, so trading in gold may not yet be over. From the GIORI index perspective, it has currently reached the peak levels of the 1970s-1980s, and if it breaks through this resistance level, the momentum implied by order reconstruction may drive gold into a new pulse market.

Summary: Current Views on Gold

From an absolute price perspective, the current unexpected increase in gold prices implies a pricing of the reconstruction of global order. If compared with history, it is quite similar to the periods of order turmoil from 1780-1800 and 1910-1940. Until the new order becomes clear, we still strategically hold a bullish view on gold. Once the situation becomes clear, the beneficiaries' fiat currencies will step onto a new level on the shoulders of gold. From a relative allocation perspective, gold is currently decoupled from most asset trends, becoming one of the few varieties that can reduce the volatility of asset portfolios. **

Therefore, whether from the absolute price of gold (subjective strategic bullishness) or from the relative allocation value of gold (reducing asset volatility), we believe that gold still has significant allocation value. Thus, following our emphasis in December 2023, May 2024, and March 2025, we reiterate for the fourth time that we should hold a strategic reverence for gold and pay attention to its allocation value.

Author of this article: Zhang Yu, Source: Yi Yu Zhong De, Original title: "Zhang Yu: Reflections on Gold Over the Past Two Years"

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