Chinese President Xi Jinping has urged troops to strengthen their preparedness for war, according to state media reports, following recent large-scale military exercises around Taiwan. Earlier this week, Beijing deployed fighter jets, drones, warships, and coast guard vessels to encircle the island, marking the fourth significant military operation targeting Taiwan in just over two years.
China’s leadership, under the Communist Party, has repeatedly emphasized that it will not exclude the possibility of using force to bring Taiwan under its control.
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This, along with several ongoing geopolitical conflicts, has pushed gold prices to new heights. As of October 21st, the spot price of gold has surged past USD 2,700 per troy ounce. This rally reflects a broader trend, where gold often becomes a safe haven asset during times of heightened uncertainty and instability in global markets.
One of the primary drivers behind this surge is the intensification of geopolitical tensions. Conflicts in regions such as the Middle East, including Israel invasion to Palestine, as well as the ongoing war in Ukraine, have created anxiety in global markets. These tensions have led investors to seek refuge in assets that traditionally hold value during crises, with gold being the most reliable.
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Furthermore, central bank buying has been a crucial element in gold's rising demand. Several emerging market economies, including China, Russia, and India, have increased their gold reserves as part of efforts to diversify away from U.S. dollar-denominated assets. This trend indicates a long-term structural demand for gold, providing further support for its price growth. With central banks accumulating gold at historically high levels, the price is likely to see sustained upward momentum.
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As seen from the chart, foreign holdings of U.S. Treasury debt in absolute terms have been steadily rising, particularly since the mid-2000s. However, the percentage of total U.S. debt held by foreign investors has been declining over the same period.
Due to all of the factors mentioned above, we believe now is an excellent time to invest in gold-related stocks. As of October 21st, most gold-related stocks have risen, such as PSAB with an 11.4% gain, ANTM with a 4.0% gain, HRTA with a 2.1% gain, and BRMS with a 1.8% gain. We believe stocks like ANTM and UNTR could be good choices as they offer exposure to gold and are still trading at attractive valuations (14.8x and 5.3x 12M TTM PE, respectively).
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