Gold breaks $4,000: Is it the last frenzy or the dawn of a new era?

Abstract: As gold prices historically break through $4,000 per ounce, the market is plunged into unprecedented divergence. Bulls see it as the beginning of a global monetary system restructuring, while bears warn it's a trap of overextended Fed rate cut expectations. This article analyzes the deep game behind gold from three perspectives: pricing mechanism evolution, central bank behavior logic, and momentum structure.

I. Paradigm Shift in Pricing: Gold is No Longer Just an 'Inflation Hedge'

 

The traditional gold analysis framework (real interest rates, dollar index) is failing. The current gold rally is accompanied by peculiar phenomena:

 

- Rare simultaneous strength in both the dollar and gold
- Bitcoin and gold soaring together
- Record central bank gold purchases sharply diverging from retail investor behavior

 

New pricing logic: Gold is transitioning from a 'commodity' attribute to an 'ultimate currency' attribute. The core price driver has shifted from 'US real interest rates' to 'revaluation risk of the global fiat currency system'. Geopolitical fragmentation accelerates this transition, making gold the 'insurance policy' for global assets - and the premium is rising.

 

II. Strategic Shift in Central Bank Behavior: A Silent Monetary Rebellion

 

Central bank gold buying is no longer tactical allocation but strategic behavior:

 

- De-dollarization of reserves: 2023 saw record central bank gold purchases, with Poland, China and others continuing to increase holdings
- Geopolitical hedging: Dollar 'weaponization' post Russia-Ukraine war prompts non-Western nations to reassess reserve security
- Search for new anchors: Gold becomes the best transitional anchor asset before new monetary order forms

 

Key insight: Central bank gold buying has strong stickiness - once started, it's hard to reverse. This provides gold prices with a solid floor unseen in previous cycles.

 

III. Momentum Structure Analysis: Health of Current Rally

 

Driver Sustainability Risk Points
Central bank buying (strategic) ★★★★★ Highly sustainable
Institutional allocation (rebalancing) ★★★★☆ Moderately sustainable
Retail chasing (sentiment-driven) ★★☆☆☆ Fragile
Rate cut expectation trades ★★★☆☆ To be verified

 

The current rally is led by central banks and institutions, making its foundation more solid than the 2011 bubble mainly driven by retail. But beware volatility from short-term overheating sentiment.

 

IV. Three-Dimensional Assessment Framework: Still Bullish?

 

1. Time Dimension:

 

- Short-term (1-3 months): Technically overbought, watch for quick pullback to $3,800-$3,900 zone. But central bank buying and geopolitical risks will limit downside.
- Medium-term (1-2 years): Against unsolved US fiscal deficits and continuing de-dollarization trend, oscillating upward movement is highly probable.
- Long-term (5+ years): If multipolar currency system materializes, gold could be revalued to higher levels.

 

2. Position Management Suggestions:

 

- Existing holders: Consider dynamic profit-taking (e.g. using 50-day MA as reference) while keeping core positions. Use options strategies to hedge short-term volatility.
- New entrants: Avoid heavy one-time positions; adopt phased entry or dollar-cost averaging. Watch catch-up opportunities in gold miner ETFs (e.g. GDX).
- Observers: Allocate to gold-linked structured products to participate in potential upside while limiting downside risk.

 

3. Alternative Considerations:

 

For those concerned about gold's high price, consider assets linked to gold's logic but with relative lag:

 

- Silver (gold/silver ratio at historic highs)
- Quality gold miners (trading at discounts to gold price)
- Related currencies (AUD, CAD etc. from resource countries)

 

Conclusion: What Role Does Gold Play in This Monetary Restructuring Era?

 

$4,000 gold isn't an endpoint but a signal - marking global monetary system's entry into a new era of significantly heightened uncertainty. In this era, gold's pricing will depend less on US real rates and more on the decay rate of global confidence in existing monetary systems.

 

For investors, the key question is no longer 'Is gold overvalued?' but 'How much gold should I hold as insurance in current geopolitical and monetary environment?' This is no longer a pure investment decision but a strategic choice about risk exposure.

 

History shows that during paradigm shifts, 'reasonable prices' based on old paradigms often prove conservative. With gold, we may well be at such a historic inflection point.

 

Disclaimer: The above analysis is for reference only and does not constitute investment advice. Market risks exist; invest with caution.