Harris Associates: Under geopolitical conflicts, safe-haven assets are in demand, and investors are expected to continue increasing their holdings in gold to hedge against risks

According to the Zhitong Finance APP, Zhao Shande, Senior Strategist for ETF Business at Value Partners, stated that since U.S. President Trump took office, the global trade and geopolitical order has continued to face challenges. Zhao believes that the Federal Reserve entering a rate-cutting cycle, the current high valuation of U.S. stocks, the potential AI bubble, the continuous increase in gold reserves by global central banks, and the debt pressure in the U.S. may prompt investors to continue increasing their gold holdings in their portfolios to hedge against systemic risks.

Zhao pointed out that while the geopolitical situation in the Middle East has eased, the deadlock continues to increase demand for safe-haven assets under the tone of a U.S. government shutdown and concerns about economic activity being dragged down. Gold, as a traditional safe-haven asset, has attracted a large amount of capital, reaching a historic high of $4,000 per ounce.

The U.S. federal government experienced a shutdown, and there are still no signs of compromise between the two parties on the funding bill. Government departments and airports are experiencing staff shortages and cannot operate as usual, and agricultural subsidies have also been delayed. Zhao believes that even if the U.S. government reopens in the future, a large amount of key economic data that has been delayed will emerge, and the market may not be able to digest it immediately, leading to significant volatility.

Zhao mentioned that despite ongoing inflationary pressures, the U.S. unemployment rate is rising, and there are concerns about the economy heading toward recession, prompting investors to further turn to gold and other value-preserving assets. Recent minutes from the Federal Open Market Committee revealed that most officials agree on further rate cuts before the end of the year, increasing market certainty about rate-cut expectations and boosting gold performance. Historically, during rate-cutting cycles, the faster the rate cuts occur, the faster gold prices rise, outperforming other assets such as stocks and bonds, reflecting a certain degree of correlation between rate-cutting cycles and gold performance.

He noted that against the backdrop of increasingly complex geopolitical situations, the structural demand from central banks plays a positive supporting role for gold prices. Global central banks continue to increase their gold reserves to reduce the risk of dependence on dollar-denominated assets. According to the latest data, the People's Bank of China has purchased gold for 11 consecutive months, and since China's gold reserves as a percentage remain lower than those of other developed countries, it reflects that China will continue its strategic purchasing behavior in the near future.

Zhao also pointed out that the recent significant increase in gold ETF fund flows reflects the synergistic effect of institutional and retail participation, and the investment demand from institutions such as central banks is also a major catalyst for the record rise in gold. Given the current high valuation of U.S. stocks, potential AI bubbles, and debt pressures in the U.S., investors are driven to increase their allocation of gold in their portfolios to hedge against systemic risks