Transcription
On July 7th, Hong Kong revealed a significant card. It wasn't a secret meeting or insider information, but an official press conference with high-ranking officials confirming the launch of Hong Kong's central gold clearing and settlement system.
The moment this card was revealed, those in the industry were stunned. The nearly 50-year-old war for power in gold price determination had finally seen someone boldly place their chips on the table. Some called it overturning the table, while others saw it as merely asking for an extra chair to join the game. Most people, upon hearing the news, likely thought, "Hong Kong has created another new platform." After reading, they might have swiped the screen away. This kind of reaction shows you're only seeing the face of the card. The back of the card is the crucial part. Whoever controls the gold settlement system controls the gold price. I want everyone to remember this sentence. I'll revisit it later. First, I'd like to ask you three questions.
Question 1: Who is Hong Kong challenging with this move? Is it intended to overturn the table, or just to get an extra chair?
Question 2: Around the same time Hong Kong revealed this card, Wall Street was engaged in a quiet battle. You may have heard gold price predictions split into two camps: one saying prices will fall further in the short term, and the other predicting a sky-high surge in the long term. They sound like oil and water, don't they? But what if both predictions came from the same investment bank, the same report, and the same group of people?
Question 3: These two issues seem unrelated, but they actually point to a single truth. Gold prices have never been just floating numbers; they are three answers measured by three rulers. Today, I will analyze and explain each point, from Hong Kong's opening move to which information in your wallet you should trust. Why do you need to know this? Because it will help you avoid losses and understand the game of the big players.
Let's start with the first ruler, which has been guiding gold prices for the past five months. I call it the interest rate ruler. This ruler doesn't measure how good gold is, but rather the cost or price you have to pay to hold gold. Think about it: with the same amount of money, if you buy gold and hold it for a year, you get no interest. But if you use that money to buy US government bonds, you can comfortably earn interest. The higher the interest rate, the more interest you have to forgo, making the opportunity cost of holding gold more expensive. The formula is simple: interest rates rise, gold falls; interest rates fall, gold rises. And what do interest rates follow? They follow inflation expectations. And inflation expectations follow one thing: oil prices. We saw a fresh example of this just a few days ago. On the night of July 8th, Trump announced that the temporary ceasefire with Iran had ended, and US forces began further airstrikes. Oil prices immediately surged over 5%. According to the rules, when war breaks out, gold should skyrocket. But instead, prices fell to a new low. Why did the king of safe-haven assets fall in price when people needed safety the most? The answer lies in the transmission chain I just mentioned.
Mr. Miel, Chief Commodities Strategist at TD Securities, explained this chain very clearly. He said that the turmoil in the Strait of Hormuz over the past few months has depleted global crude oil stocks to historic lows. Even if the war ends and oil tankers resume operations immediately, it will take until after October for stocks to be replenished. Therefore, he estimates that Brent crude oil prices have a chance to break through $90-$110 per barrel, significantly higher than the $74 price at the time. You might wonder, what does oil price have to do with gold? This point is crucial. There's a whole chain connecting these two. I'll explain it simply: a rise in oil prices doesn't just mean we pay more for fuel; it means the cost of the entire economy is pushed up. Inflation expectations will soar. When inflation is high, the US Federal Reserve (Fed) won't dare to cut interest rates easily; they might even consider raising them to curb inflation. When interest rates remain high or rise, the cost of holding gold increases. When costs are high, capital flows to assets that offer interest, leaving gold to bear the brunt. This chain is interconnected, and what happened on the night of July 8th followed this path precisely.
If this chain still sounds difficult to understand, imagine this: you have a sum of money and two options. First, buy a commercial building with tenants, earning stable rental income every month. Second, buy a famous painting to hang on your wall, which looks beautiful but generates no cash flow. In normal times, people would pay to buy a painting to preserve its value, right? But when interest rates are pulled higher, the returns from commercial building rentals become very attractive. If you keep holding onto that painting, you're essentially giving up the rent you could have received. Gold is like that famous painting. Bond yields are like the commercial building that collects rent consistently. This interest rate ruler, from beginning to end, measures only one thing: how much rental income you lose by holding onto non-interest-bearing gold. This is why, as soon as the minutes of the Fed's June meeting were released, the market reacted by anticipating another interest rate hike before the end of the year. It's not that Fed officials are taking a hawkish stance; it's oil that gives them a reason to do so. The report stated that although only a few officials supported a rate hike, almost all participants expressed significant concerns about rising inflation. And what is the number measured by this interest rate ruler? Mr. Miel estimates that in the short term, gold prices may have to fall below $3,900 before hitting the bottom of this correction cycle. He even precisely identified the trigger mechanism: every time Brent crude oil prices rise by one level, inflation expectations will follow suit. The rationale for the Fed to adopt a tight monetary policy will become stronger, and the opportunity cost of holding gold will become heavier. This ruler measures only one thing from start to finish: is it worth putting your money here?
Alright, the first ruler is finished. You might feel this logic is flawless, right? But wait, don't believe it 100% yet, because we still have the second ruler, and the world it measures is vastly different. I call this the credit ruler. It doesn't ask how much gold is worth in terms of interest rates right now, but rather a deeper question: does the paper money in your hand still have real value? Before we understand how this ruler measures, we need to grasp one thing thoroughly: gold and the dollar have never been a comparison of two commodities, but a tug-of-war between two systems of credibility. The credibility of the dollar depends on how well the US government keeps its word, while the credibility of gold comes from the fact that for the past 5,000 years, no one has been able to conjure gold out of thin air. What the credit ruler measures is the tilt of this credibility scale. And where is the scale tilted now? I have some numbers for you, all of which are real. Global total debt in the first half of the year surged to a record $353 trillion. Government debt alone accounts for nearly one-third of the total debt, also a record high. What does this mean? It means fiscal policy is becoming increasingly constrained. Governments can't pay off their debts. Raising taxes will be met with public outcry. Ultimately, the only remaining solution is often to have the central bank quietly print money and use inflation to devalue the debt. This is the main risk measured by the credit ruler. It's not a question of whether gold prices will rise, but when the paper money we use will have its value secretly diluted.
Look at the other side of the scale. Gold is quietly taking on a more significant role. European Central Bank estimates indicate that by the end of 2025, gold will account for 27% of global official reserves, surpassing US government bonds at 22% for the first time. What does this mean? It means that among the core assets held by central banks worldwide, gold now outweighs US bonds. This isn't just a cool slogan shouted by analysts; it's a result built from actual receipts recording the transfer of gold into vaults, one after another. If you use this credit ruler to measure, the target price often comes out shockingly high. I've already discussed the calculation formula for $35,000 by Rick Rule. He uses this ruler. Even industry veterans see long-term targets of $10,000-$12,000. The strength of this ruler is that it doesn't care about next week's price; it's betting on whether the global financial system's credibility can remain intact in 10 years. This ruler has a history. In the past, we looked back at 1975. At that time, gold prices fell by half. But when the US Congress couldn't tolerate high interest rates and had to reverse course, gold prices rebounded more than 8 times from their lowest point. What they were assessing was this same ruler: measuring the diminishing credibility of paper money. Today's credit ruler is measuring the same devaluation, just in a different century and with different numbers.
After hearing about these two rulers, you'll find something very interesting. They aren't arguing to find a single answer to the same question; they are measuring different things. The interest rate ruler measures which investment is most worthwhile next week. The credit ruler measures how much value paper money will have in 10 years. Short-term and long-term should have different answers; this is not strange. But what's truly strange is what I'm about to tell you. If you think these two rulers belong to two different groups on opposite sides, arguing with each other, you might be shocked. I found the same report, published on the same day. The commodity strategy team at TD Securities lowered their gold price forecast for the third quarter of this year by 3% in the same research report, to $4,550. For the fourth quarter, they lowered the target by 10% to $4,700. But wait. Towards the end of the same report, they revised their long-term forecast for the second quarter of 2027 upwards by a whopping 7%, to $5,350. You're not hearing things. The same investment bank, the same team of analysts, signed the same report, yet they lowered short-term figures and raised long-term ones. Do they have split personalities? No. True professionals never carry just one ruler; they carry both in their pockets. When they need to measure short distances, they use one; when they need to measure long distances, they pick up the other. This isn't just a case of TD; JP Morgan says we'll see $6,000 by the end of the year and $6,300 in 2027. Goldman Sachs targets $5,400 by year-end, while ING averages just $4,300 for the third quarter. The same market, the same time, yet the figures from these giant banks differ by thousands of dollars. It's not that someone calculated incorrectly, but rather that the rulers in each person's pocket have different lengths. Mr. Miel himself admitted that as soon as the Iran conflict ends and interest rates can be lowered, the market will return to discussing speculative transactions on currency depreciation. He knows that the interest rate ruler can only handle immediate issues; it's not effective for long-term matters.
Here, I'd like to add some very interesting details to make the picture clearer: how quickly a ruler can slap us in the face. After the non-farm payrolls data came out unexpectedly, Mr. Miel retracted some of his previous statements, saying that as long as the Fed's interest rate hike is not seriously on the table, the support level of $3,900 should hold, and might even be revised upwards to a short-term range of $4,280. And what happened? In less than 5 days, Trump uttered a single sentence: "ceasefire is over," and oil prices immediately jumped 5%. The number one risk he had identified came back to haunt him fully. This is the fate of using the interest rate ruler to measure prices. It is highly sensitive, so sensitive that a single piece of news can invalidate last week's decisions. This isn't because Mr. Miel isn't professional, but it's the nature of this ruler. The closer it is to reality, the less it can withstand the world's volatility. Reality is not that constant.
Alright, if you think I've explained these two rulers clearly and effectively today, please give me a like. Because so far, these two rulers have only measured how much gold is worth. But there's still a fundamental question that neither of these rulers can answer: who decides which ruler to use, and can the measured numbers be truly relied upon? This brings us back to the opening card. On July 7th, the Chief Executive of the Hong Kong Special Administrative Region announced at a financial seminar that Hong Kong's central gold clearing and settlement system had officially begun trial operations. This sentence sounds like official news, and most news outlets reported it as such, perhaps with a picture of the launch event and a few fancy adjectives like "a significant step." But I want to tell everyone that the true weight of this news is hidden in the layers that no one explains. The person who decides where the gold price is set is never the one with the largest vault of gold, but rather the one who controls the scales, controls the receipt of funds, and controls the accounting system. This is the sentence I told everyone to remember from the beginning of the program, and now we are going to put it into practice. Before explaining how significant this is, we need to understand how gold prices are determined. The globally accepted benchmark price is called the London Gold Fix, which is set twice a day. Futures contracts, derivatives worldwide, and even the valuation of central bank reserves all refer to this price. What's so special about London? Why does everyone trust it? Not because they have the largest gold vaults, but because most gold trading in the world passes through London's settlement system for accounting. This structure has been in place for over 100 years, and no one has ever seriously challenged it. It's like saying that no matter how loudly merchants on the street shout their prices, the real price setter is the accounting desk controlling the money collection and the scales at the head of the street. Whoever controls the accounting desk controls the price. Hong Kong's move is about repositioning this accounting desk.
On the same day, a new price code called "Au" was launched, designed specifically to track gold price movements in the Asian time zone. Why do we need it? Because after London sets the price in the afternoon each day, until the European market opens the next morning, this middle period is the peak of Asian trading. And the prices during this time have always been in a state of information vacuum, with no official benchmark to rely on. Au was created to fill this gap. So, what does this have to do with the question of who sets the price? If we dig deeper, you'll find a very strong piece of evidence: gold in mainland China has been quietly more expensive than in London. Latest monitoring data from State Street Bank shows that in June, the premium on gold in China rose to an average of 1.0%, the highest level since April 2025. What is a premium? It's the same standard gold bar, but if you buy it in Shanghai, you'll pay 1% more than buying it in London. What does this tell us? It tells us that London's benchmark standard can no longer fully reflect the overall supply and demand in Asia. While capital from the West is withdrawing, physical gold in the East has to pay more to be purchased. The prices on both sides are engaged in a quiet battle. And this battle is much fiercer than the numbers we see on the surface. In the first quarter of this year, reported gold purchases by central banks were only 16 tons, with a net sale of 129 tons. At first glance, it seems central banks are no longer buying gold, right? But the World Gold Council looked at it from another angle, using data on over-the-counter trading in London plus import and export data from Swiss refineries to calculate backwards. The result was that actual gold purchases in the first quarter surged to 244 tons, an increase of 208 tons from the previous quarter. Where did the difference of hundreds of tons go? No one reported it, because reporting gold purchase volumes to the International Monetary Fund (IMF) is not a mandatory rule. You might think the official data you see is the whole picture, but the reality might just be a part they want you to see.
JP Morgan sees deeper details. China's net gold imports in the first quarter soared to 317 tons, nearly three times more than the previous quarter. And the timing of purchases reported by the People's Bank of China jumped from about 1 ton per month to 5 tons in March and 8 tons in April. When you connect these numbers with the 1.0% premium I mentioned earlier, it's actually two sides of the same story. On one hand, it's hard to buy, so people are willing to pay more to compete for it. On the other hand, they've bought it but want to remain quiet. When you look at these numbers together and then look back at the settlement system on July 7th, all the logic falls into place. It's not that the system came first and then demand followed; demand has been pent up for a long time. The system is merely opening an official channel for that demand to be released. So, is Hong Kong's system designed to dethrone London and establish itself as the price setter? If you only look at the external movements, this speculation is not unreasonable. Think about it: a 100% government-owned settlement platform designed to reduce reliance on Western price benchmarks, and actively attracting central banks from the Belt and Road Initiative to join. If this isn't overturning the table, what is? This is why most news outlets interpret this simply as the East challenging the West, a black-and-white narrative that's easy to understand. But today, I have a twist for you. I checked the list of board members of the Hong Kong Gold Clearing Company and found something that doesn't seem very confrontational. The 11 banks on the board are all major players from Wall Street and Europe, including JP Morgan, Citibank, UBS, and HSBC. HSBC itself was instrumental in helping many corporate clients complete their first transactions on the day the system opened. The executive of JP Morgan's Hong Kong branch has openly expressed support for Hong Kong to become the Asia-Pacific gold trading hub. Imagine this: if this were a conspiracy to ruin Wall Street's business, why would Wall Street people be smiling and dealing cards in the middle of the circle?
Digging a little deeper, there's another interesting layer to consider. The new price code, Au, uses London 400-ounce gold bars as its benchmark, the exact international standard. The accounting format is almost a direct copy of the international practice of London's unallocated gold bar accounting system. Furthermore, this price is directly displayed on the Bloomberg Terminal and the London Stock Exchange screens for traders worldwide to use as a reference. Think about it: would a system that intends to be independent, build its own empire, and completely break away from the old order use its competitor's measurement standards, speak the same language as its competitors, and display its prices on its competitors' terminals? Therefore, the conclusion I have for you might completely change your perception. This is not an eye-for-an-eye, tooth-for-a-tooth overturning of the table, but rather a quiet acquisition of shares. Someone has brought their own chair to join the table. And this chair is built to the exact specifications of the old table. Upon sitting down, they even shake hands with the old hosts amicably. But don't think this calm will be without its consequences. Actions that truly change the rules of the game are never a sudden explosion that shatters the table, but a quiet infiltration of the system. Look back 10 years from now. This method might change the face of the industry more decisively than any table-flipping incident. Mr. Ting Meng, Chief Economist at CTIC International Bank, once said something I agree with: the Asian time zone needs a more vibrant gold trading center. But this doesn't mean we're snatching pricing power from New York or London; it's about completing the existing international gold pricing mechanism. This is the voice from the connection theory camp. But the criticism from the other side is equally weighty. Some Western analysts directly state that whoever controls the settlement system controls the benchmark price. Infrastructure like this, once built, doesn't immediately show its power, but it quietly changes all future possibilities. I won't judge these two perspectives for you; friends, weigh them and consider them yourselves.
Moreover, this battle doesn't just have two players. Last month, Singapore announced it would launch its own settlement mechanism by the end of this year. Settlement systems have a harsh reality: they require massive trading volumes to build strength. Once Asian capital flows are divided into two streams, neither of these two entities will be able to gather enough trading volume to challenge London. Hong Kong also has ambitious goals: within three years, it aims to expand its storage capacity to over 2,000 tons, while offering tax incentives and unlocking pension fund regulations. They seem determined to do this business for the long haul. Therefore, what we should be watching next might not be whether the East will defeat the West, but rather which of Hong Kong or Singapore will grab this large piece of the Asian cake first. We've discussed all three rulers up to this point. I want to lay them out clearly for everyone to see what questions each one helps answer. The interest rate ruler answers: is it worthwhile to invest in gold next week? The credit ruler answers: in 10 years, how much value will paper money retain? And the third ruler, which Hong Kong is building, answers the most profound question: who will hold the first two rulers in the future, and can the numbers they measure be trusted? The first two rulers determine the value of gold, while the third ruler determines who ultimately dictates that number.
Alright, after hearing about the three rulers, how should you structure your investment portfolio? I won't dictate prices, but I'll share a concept of how to look at the rulers and then structure your portfolio for you to consider. If you're a short-term player, needing to access funds within 3-6 months, you need to pay close attention to the interest rate ruler. Support levels of $3,900, Brent crude oil prices between $90-$110, and even each statement from the Fed are all indicators of the wind's direction. Keep your portfolio light and don't forget to set stop-loss points, because this ruler can flip faster than you think. Mr. Miel being proven wrong within 5 days is a costly lesson. But if you have cold, hard cash that you plan to leave untouched for a long time, you should focus on the credit ruler. Figures like debt ratios or reserve proportions move slowly, but once their direction is clear, they don't easily reverse. This is ideal for gradual accumulation, as you are profiting from the trend, not price volatility. As for the third ruler, it may not be fully developed yet, but it's worth keeping on your watchlist. Products priced in yuan or during Asian hours are new avenues that may become available for investment in the future.
Three rulers for three types of money. Don't use the ruler that measures next week's price to measure your pension that you plan to use in 10 years. Singapore just announced last month that it will launch its own gold settlement system by the end of this year. Hong Kong has played its first card, and Singapore is preparing to bring a chair to the table. Two Asian cities are about to compete for the same cake and the same customer base. Will the strategies of these two systems be aligned, or will they play individually and sabotage each other? Who will get to devour this large Asian cake, or will both end up injured and get nothing? In the next clip, GoHth will lay out this chessboard and analyze it with everyone. Finally, I reiterate that all content is for market observation and information sharing only, not investment advice. For today, I bid farewell and see you in the next clip. Goodbye.