Last week, international gold prices surged to new highs but later pulled back, ending with a cumulative decline of 0.20%. During the week, prices briefly rose above $2,800 per ounce, hitting a new peak. On Friday, November 1, the London exchange spot gold closed at $2,735.91 per ounce, marking a two-day retreat, while New York futures gold settled at $2,745.90 per ounce. Year-to-date, international gold prices have increased by over 32%, setting record highs more than 30 times this year.

Alongside these price gains, gold-themed funds have also seen rising returns. According to Wind data, as of November 1, the average annual return for gold-related funds was 24%, with seven products yielding over 30%. The top performer was the Huitianfu Gold & Precious Metals Fund A, which achieved a 31.32% return this year since its inception in August 2011. Following closely were funds like the ChinaAMC CSI SH-SZ-HK Gold Industry Equity ETF and gold ETFs from E Fund, Cathay, Huaxia, Bosera, and other companies, all of which had returns exceeding 30% year-to-date.

In the retail market, as international and domestic gold prices continued to rise, retail prices of gold jewelry in gold shops also increased. On November 3, major brands maintained high prices, with Chow Tai Fook and Chow Sang Sang both pricing gold jewelry above 810 yuan per gram.

source：China Business News

What is a Gold ETF?

A Gold ETF is an exchange-traded fund that uses gold as its underlying asset. It operates similarly to stocks, allowing investors to buy and sell shares on the stock exchange. Typically, Gold ETFs are backed by actual gold holdings, with fund companies holding a corresponding amount of gold to ensure the fund’s share value aligns with gold market fluctuations.

How Gold ETFs Work

Gold ETFs are generally structured by purchasing and holding physical gold or by using gold futures contracts. When investors buy shares in a Gold ETF, they essentially purchase a small representation of the fund’s gold holdings. The fund company adjusts the gold holdings according to real-time market prices to ensure the value of each share aligns with the price of gold.

Is $3,000 Gold Possible?

Recent price surges have been extraordinary, not only reaching record highs but also diverging from the traditional correlation with the dollar and oil prices. Deutsche Bank notes that gold’s performance has been exceptionally strong, even exceeding the valuations of traditional models, with the deviation reaching its highest level since 1998.

Morgan Stanley has even developed a new regression model to measure gold price changes. This model includes multiple factors, such as ETF liquidity, central bank reserves, the Consumer Price Index (CPI), the Dollar Index (DXY), the Global Risk Index, and net futures positions, significantly enhancing the model’s accuracy.

Due to the ongoing rally, several institutions have raised their forecasts for gold. UBS recently released a report raising its gold price outlook, predicting prices could reach around $2,800 per ounce by the end of 2024 and climb to $3,000 per ounce in 2025. This forecast reflects strong market demand for gold, with little sign of selling pressure.

UBS's optimistic forecast is supported by multiple macroeconomic factors. The bank noted that in addition to the Federal Reserve, other central banks around the world are adopting monetary easing policies, which creates favorable conditions for gold purchases. UBS has also prioritized gold as a top asset in its global strategy.

Bloomberg Intelligence’s senior commodities strategist Mike McGlone believes hedge funds will drive gold prices up to $3,000 per ounce. Similarly, Goldman Sachs has recently revised its forecast, raising the expected price for gold next year from $2,686 to $2,973 per ounce. Morgan Stanley’s new model projects that gold could reach $3,100 per ounce in the first quarter of next year.

How to Choose a Gold ETF?

When choosing a Gold ETF, investors should consider several factors:

Fee Structure: Look at the fund’s management and transaction fees, opting for products with lower costs.

Liquidity: Check the fund’s trading volume and liquidity to ensure smooth transactions when buying or selling.

Fund Size: Generally, larger funds tend to offer higher liquidity and transparency.

Fund Management Company: Choosing a reputable fund management company with experience can minimize management risks.

Risks of Investing in Gold ETFs

While Gold ETFs have many advantages, investors should also be aware of the potential risks:

Price Volatility: Gold market prices can fluctuate significantly, leading to potential gains or losses.

Management Risk: Although management fees for Gold ETFs are low, the operations of the fund management company can impact the fund’s performance. For instance, poor management could result in returns below expectations.

Market Risk: The overall economic situation, changes in interest rates, and geopolitical events can all influence gold demand and prices, thereby affecting the performance of Gold ETFs.

This overview highlights Gold ETFs as a viable and accessible option for investors looking to gain exposure to gold, with opportunities for both portfolio diversification and risk mitigation.

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