Author：Wall Street CN

The class representative for the investment homework has compiled the key points as follows:

1. We know that the same applies to stock trading. When everyone rushes in, it's basically the peak. So, at 5500 or 5600, gold's safe-haven properties weren't as obvious, and it even temporarily disappeared.

But we believe that, in the long run, the biggest story about gold is that it is the antithesis of the dollar's credibility.

2. In order to protect their exchange rates, many central banks in emerging countries have had to sell their gold holdings and buy US dollars. This has led to the so-called gold sell-off.

It turns out that the central bank was originally hoarding gold, but now it's selling it.

Although everyone is criticizing it, consider this paradox: precisely because of gold's safe-haven properties, precisely because gold is the opposite of the US dollar, you are forced to sell your gold holdings to save your own currency. The only counterparty to saving your currency is gold; therefore, gold is the true faith.

3. GoldIt will continue to go down, then up again; it's clear it hasn't reached its peak yet.Doubling it again is no problem, but it's not something we can achieve this year.

4. Despite the significant drop in gold prices, the main issue is that if we look at its annualized return from a data model perspective, it remains at the very top of its historical range—around 5 to 6 times the variance.

Mean reversion is a statistical law; prices will inevitably revert to the mean. So, people might wonder if prices will fall. But that's not the end of the story. The story of gold has been told for 5000 years, and it will continue for another 5000 years. That's why I always say "hoard gold, don't speculate."

The following is a summary of key points compiled by the investment homework instructor (WeChat ID: touzizuoyeben), shared with you:

Liu Jipeng: Another question is about gold. Does Lotus Capital have gold in its asset allocation? Will you allocate gold in the future? What is your view on this? Gold is actually more volatile than the stock market right now, especially these last two times, when it fell from 5600 points to 4100 points. Such a large fluctuation is very rare.

This afternoon I had a discussion with some investors, and this question was raised: Is the Chinese stock market going to hover below 4000 points for a long time again? Should we consider gold in our asset allocation? Is there still an opportunity?

Hong Hao: There are many opportunities. The more turbulent the situation, the more opportunities there are.

Liu Jipeng:Can Lotus Capital allocate assets to gold?

Hong Hao: Okay.

Liu Jipeng: But why don't you have it configured now? (Did you manage to dodge it?)

Hong Hao: It was too high before, so we're taking a break. Because a parabolic rise is bound to be followed by a parabolic fall, the faster it rose before, the faster it will fall now. There's no way around it; it's determined by market laws.

At the same time, many people ask, why isn't gold a safe haven anymore? Gold has traditionally been a safe-haven asset, so why is it no longer used during wartime...?

I think we should first define what safe-haven assets are. Many people think that safe-haven assets are those whose prices rise during times of war. Now that the US-Iran conflict has escalated, they should theoretically rise. But during this war, two things have risen: one is energy and oil, and the other is cryptocurrencies such as Bitcoin.

This is mainly because,Due to the escalation of the war,The money in the Middle East wants to leave. Some Middle Eastern countries, such as Dubai, have begun implementing window guidance-style capital account closures. The money can't simply leave by wishing; the only way out is through stablecoins and cryptocurrencies, which has actually increased demand for cryptocurrencies. Quite interesting.

Liu Jipeng: The place you just mentioned mainly refers to Iran's need for cryptocurrency.

Hong Hao: Iran was once one of the biggest manipulators of cryptocurrency. For example, if your money is in Dubai, Dubai won't let you out. But Dubai calls itself the Switzerland of the Middle East, marketing itself like this—"We are very safe here." Even though Dubai and Iran are only separated by a strait, their short-range missiles can reach your high towers.

Therefore, people want to move their money out of Dubai. In the past few years, Dubai has attracted a lot of money with its low taxes and very generous immigration policies, and a lot of capital has bought a lot of real estate in Dubai.

I believe many people who travel to Dubai are struck by the sight of cranes, scaffolding, and supports everywhere – a classic sign of a real estate bubble. Now, with the capital account closed under window guidance, the only way to move this money out is through cryptocurrency, leading to increased demand for cryptocurrencies.

So, is cryptocurrency a safe-haven asset? Definitely not.

The most important characteristic of safe-haven assets is that their correlation with other asset classes is uncorrelated or even negatively correlated. Therefore, they will rise when other asset classes fall.

This has always been the case with gold. In a portfolio, including gold reduces overall risk and increases investment efficiency—the return per unit of risk becomes very high, or the risk per unit of return becomes very low. Therefore, this portfolio is highly effective.

Simply including gold in your portfolio will create a safe-haven effect due to its correlation with other asset classes. A good asset allocation necessarily combines several assets with very low or even negative correlations, ensuring that your portfolio can weather market cycles after sharp rises and falls. Gold has not lost its value.This feature.

When gold is in a normal price range, its correlation with other assets is very low, or even negative.

The difference this time is that gold has indeed risen to a level never seen before. When we made our recommendation, it was only a little over a thousand yuan, but last year it jumped from 2,800 to 5,600 yuan, and silver rose from over twenty to over 120 yuan.

The parabolic rise of these assets last year inevitably implies two things: first, the use of leverage accelerated the price surge during the rise; second, the rise in precious metal prices has led to increased public attention, attracting more and more non-mainstream funds to join in.

We know that the same applies to stock trading; when everyone rushes in, it's usually the peak. Therefore, at 5500 or 5600, gold's safe-haven appeal wasn't as strong, and it even temporarily disappeared from the market.

However, we believe that in the long run, the biggest story about gold lies in its role as the antithesis of the US dollar's credibility. So why, besides the dangers posed by leverage bursting and parabolic price increases, is there another issue with gold this time? Part of the demand comes from central banks hoarding gold because they are afraid to buy US Treasury bonds, as the creditworthiness of US Treasury bonds has been compromised.

This year, the total outstanding amount of US debt reached over $40 trillion. With US debt reaching this level, many are questioning its sustainability.

Meanwhile, the money the US now pays in interest on its Treasury bonds far exceeds its military spending. I estimate defense spending is over $1.1 trillion a year, exceeding military spending and healthcare spending—it's outrageous. Seeing this, many people might think it's a scam. You can only repay old debts with new ones; that's a Ponzi scheme. So, expecting it to repay its debts on its own is probably unrealistic for many. That's why central banks have stockpiled a lot of gold.

But afterwards, another indicator emerged: the dollar exchange rate surged. This surge indicated that demand for dollars far exceeded supply, and dollar liquidity began to temporarily contract during the war. This was particularly difficult for emerging economies, as many Western countries held dollar-denominated debt.

When war breaks out, everyone dumps all their emerging market currencies, quickly exchanges them for US dollars, and runs away. Many central banks in emerging markets are forced to sell their gold reserves and buy US dollars to protect their exchange rates.

Imagine this: this leads to a so-called gold sell-off. The public then realizes that the central bank, which was hoarding gold, is now selling it.

Although everyone is criticizing it, consider this paradox: precisely because of gold's safe-haven properties, precisely because gold is the opposite of the US dollar, you are forced to sell your gold holdings to save your own currency. The only counterparty to saving your currency is gold; therefore, gold is the true source of confidence. The logic is certainly like this.

Therefore, I believe that after this volatility gradually subsides, gold will once again offer a long-term investment opportunity. The opportunity doesn't lie in how expensive or cheap gold is, but in the continued existence of its weak correlation with the US dollar, and in gold's continued role as a natural counterpart to the dollar.

Liu Jipeng: My second question is, will gold prices continue to fall?

Liu Jipeng: There's another question you don't have to answer: Is $4,100 the bottom?

Hong Hao: Or to put it another way, despite the fact that it has declined so much, the main problem is that if we look at its annualized rate of return from the data model, it is still at the very top of history—about 5 to 6 times the variance.

Mean reversion is a statistical law; prices will inevitably revert to the mean. So, people might wonder if prices will fall. But that's not the end of the story. The story of gold has been told for 5000 years, and it will continue for another 5000 years. That's why I always say "hoard gold, don't speculate."

Liu Jipeng: Goldman Sachs and BlackRock have different predictions for gold's future, such as its performance by the end of this year or in 2027. Some predict it will reach $6,300, while others predict it will reach $5,900, both higher than the current $4,000. What's your opinion? Do you also think that gold hasn't reached its full potential yet?

Hong Hao: Yes, I think doubling it again is no problem, but whether it can be achieved this year is another question.

Because gold and silver were the best-performing assets last year, it would be extremely difficult, very difficult, for them to replicate that performance this year. I wouldn't bet on that here.

Or, to put it another way, when we made this trade last year, gold and silver offered an asymmetrical return for us—the upside potential was enormous, while the downside potential was limited. Therefore, when this market rally occurred last year, the entire market likely saw this asymmetrical risk-reward ratio, with the returns far outweighing the risks. Thus, holding onto your positions last year would have been sufficient.

But this year, because the market was so good last year, some people want to make a profit, and I think that's definitely a valid mindset. He's already won so much; even if silver returns to 70 now, it's still up from over 20, which is a two- or three-fold increase. He can take his profits now.

Therefore, generally speaking, from the perspective of mean reversion, asset classes that performed well last year tend to perform worse this year. This is also a pattern. Think about it: some have risen to a high point, while others are at a low point, so it might be time to re-enter.

Or let's look at it from another angle: Last year's strong performance doesn't mean I should stick to this asset class every year. Everyone talks about asset class rotation and allocation; this year, we should look for new asset classes to rotate into, rather than stubbornly sticking to last year's best-performing asset class.

Liu Jipeng: I'd like to ask about the Chinese A-share market. What do you think the Chinese A-share market will do next, given its current position?

Hong Hao: Go down first, then go up.

Liu Jipeng: It will likely go down first and then up. Do you think it will go down, most likely to fall to 3800 points?

Hong Hao: Most likely, then we'll go for it.

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