As we step into the week, many commodities, including gold, hit new price heights. If we consider the two-month ascent from the bottom of $1,820 per ounce, gold futures on Comex have surged nearly 15%. This substantial increase indicates a significant upward movement for gold. Concurrently, several mainstream global market indices have reacted, indicating a broader trend that cannot be overlooked. It appears that global capital is restless, and investors are responding in kind.

But what is driving these trends?

In today's economic landscape, the fluctuations in asset prices often present a complex monetary phenomenon. Rather than viewing the spike in gold prices as a standalone event, one might consider it a reflection of the simultaneous decline in the dollar's value.

Throughout this period, other dollar-denominated assets have also seen substantial gains. The Chinese yuan has strengthened, rising from a peak of 7.35 to 7.15 against the dollar. Similarly, the price of Bitcoin has experienced significant increases. The price of any asset is fundamentally determined by investor expectations about the future. Thus, the surge in gold prices can be interpreted as a reaction to expectations regarding the dollar's depreciation.

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This anticipation is rooted in an emerging consensus among investors betting on an upcoming rate cut by the Federal Reserve.

A rate cut is akin to monetary easing—when the proverbial tap is opened, the level of water rises, lifting all boats. This metaphor suggests that it is not merely that these assets are becoming more valuable; instead, the prevailing sentiment among global capital is that liquidity will increase, thereby driving asset prices higher. The market is commencing a preemptive interpretation of this scenario.

Recently, industry insiders have thoroughly factored in a rate cut by the Fed as early as May next year, with the probability surpassing 50% for a potential cut as early as March.

With the market gearing up in anticipation of dollar rate cuts, gold has naturally emerged as a prime asset.

This expectation regarding interest rates is also observable in the yields of US Treasury bonds over the medium to long term.

The yield on the 10-year US Treasury bond has fallen from over 5% to around 4.2%, while the yield of the 10-year Treasury Inflation-Protected Securities (TIPS), a gauge of real interest rates, plummeted from 2.6% to about 2%...

It is widely recognized that there has been a strong negative correlation between TIPS yields and gold prices for an extended period. This relationship contributes to the current surge in gold prices.

On another front, renewed conflict following the breakdown of a ceasefire agreement between Israel and Palestine has escalated tensions in the region, driving fears of expanding hostilities in the Middle East. These geopolitical risks provide additional support for gold prices as a safe haven. The adage "in times of peace, prepare for war; in times of war, consider gold" resonates here, accentuating gold's traditional role as a security asset amid crises, which in turn fuels speculative demand.

In recent years, central banks around the world have exhibited a growing tendency towards diversifying their foreign currency reserves. The call for "de-dollarization" has amplified, with the dollar's share in global reserves diminishing while the proportion of gold continues to grow.

Furthermore, over the past few decades, gold has offered relatively stable annual returns, attracting interest for its ability to diversify risk, mitigate volatility, and combat inflation, all while providing investment opportunities.

So, can the average person invest in gold?

The answer is yes. In the current scenario, with low bank interest rates, a sluggish real estate market, and uncertainty surrounding alternative investments, individuals can consider allocating a portion of their assets to gold as a hedge against financial risks. However, given the rapid increase in gold prices recently, a potential correction could occur. It’s advisable not to chase prices too aggressively, as opportunities to enter the market will invariably arise.

For typical investors, there are several accessible avenues for gold investments. These include gold futures (recommended for those with substantial investment experience and higher risk tolerance), physical gold bars (suitable for long-term investors looking to buy on dips), and gold Exchange-Traded Funds (ETFs), which cater to small to medium-sized investors.

When it comes to purchasing gold, two key recommendations for everyday investors should be considered:

First, allocate only discretionary money for gold purchases. A prudent strategy is to dedicate about 5% of one’s assets to gold, potentially sourcing physical gold bars from major state-owned banks. Actual gold serves as a form of "last resort" asset; thus, it should not be influenced by return rates or frequently liquidated. It’s meant to safeguard against unpredictable major risks, such as hyperinflation. Alternatively, gold funds can also be an option, offering cost savings on both labor and transaction fees.

Second, an emphasis on long-term holding rather than short-term speculation is crucial when acquiring gold. Individuals with a strong requirement for asset liquidity should avoid significantly investing in physical gold, as it can be less liquid. The ultimate legacy of physical gold should be generational—passed down through the family rather than treated as a quick return vehicle.