After the Federal Reserve's interest rate cut in September, both domestic and international gold prices have maintained an upward trend. The London spot gold price broke through $2,600 per ounce on September 20th, and closed at $2,663.22 per ounce on October 1st, with a year-to-date increase of 29%.

Currently, how should we approach gold investment? I believe there are two key points: first, understanding the relationship between the Federal Reserve's interest rate cuts and gold prices; and second, selecting the right investment tools among the many available products for investing in gold!

Firstly, the Federal Reserve's interest rate cut is a positive factor for the rise in gold prices.

1. Interest rate cuts imply a decrease in real interest rates (i.e., nominal interest rates minus the inflation rate). In an environment of low real interest rates, investors are more inclined to allocate funds to non-interest-bearing assets like gold to hedge against the risks brought by economic uncertainty; in fact, the increased capital flows resulting from interest rate cuts also provide strong support for gold prices.

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2. Interest rate cuts bring expectations of depreciation of the US dollar, which is also an important factor driving up gold prices. Since gold is an asset priced in US dollars, the depreciation of the dollar will directly push up the price of gold.

3. Interest rate cuts may stimulate economic growth and an increase in the money supply, thereby triggering concerns about inflation. Under the influence of inflation expectations, investors are more inclined to buy physical assets like gold to preserve and increase value.

4. In the context of global political and geopolitical restructuring, gold is one of the best hedging assets. According to research by the World Gold Council, for every 100-point increase in the Geopolitical Risk (GPR) index, gold prices rise by 2.5%. So far, the risks of the election year have not been released, and the global geopolitical situation is still moving towards a more aggressive direction. The world is entering a more turbulent cycle, and the hedging performance of gold can be demonstrated again.

In summary, the factors driving up gold prices after the Federal Reserve's interest rate cut mainly include the decline in real interest rates, expectations of US dollar depreciation, the rise in inflation expectations, and the increase in hedging demand. These factors work together to push up gold prices.

From historical data, the Federal Reserve's interest rate cuts are often associated with rising gold prices. Taking historical data since 1971 as an example, the average return on gold 24 months after the first interest rate cut reached 36.4%. Looking at the historical data from 1995 and 2019, the average return on gold 24 months after the two historical soft landing samples of interest rate cuts reached 28.3%. The market estimates that the probability of the Federal Reserve continuing to cut interest rates in November is 100%, and the opportunities contained in this are self-evident.

Secondly, find the right posture to invest in gold!As of April 8, 2024, there are a total of 21 gold-themed funds on the market, with a total scale of about 44.8 billion yuan, roughly divided into three categories: gold QDII funds, gold spot funds, and gold stock funds.

Among the gold spot funds, the Shanghai Gold ETF deserves special attention. The Shanghai Gold Exchange released the first gold benchmark price denominated in Renminbi on April 19, 2016, referred to as "Shanghai Gold (SHAU)", and listed the Shanghai Gold centralized pricing contract.

Compared to the traditional AU9999 contract, the Shanghai Gold ETF has the following unique advantages:

From the perspective of investment scope, the Shanghai Gold ETF can not only invest in the Shanghai Gold centralized pricing contract but also cover gold spot cash contracts (AU9999) and gold spot deferred delivery contracts.

From the perspective of authority, the price of Shanghai Gold is formed through a centralized bidding process, participated by active large financial institutions, making its price more authoritative and fair.

From the perspective of transaction costs, the Shanghai Gold centralized pricing contract exempts transaction fees, while the gold spot cash contract (AU9999) charges relatively low fees.

From the perspective of tracking error, due to the use of unified centralized pricing results during the redemption process of the Shanghai Gold ETF, it is more accurate and efficient in tracking spot prices.

Of course, before deciding to invest in Shanghai Gold, investors should clarify their investment objectives, risk tolerance, and time frame.

On the one hand, considering the long-term appreciation potential of gold, it can be held as a long-term asset to resist the impact of inflation and economic recession. The role of gold in the asset portfolio goes without saying. On the other hand, similar to a regular investment plan for stocks, by regularly investing in Shanghai Gold, the average purchase cost can be reduced, which can mitigate the impact of market timing misjudgment.