On January 25, Schroders Global Investment published an article stating that when interest rates rise and the real interest rates of government bonds turn positive, the price of gold usually falls. However, this has not been the case in the past 18 months. Currently, the price of gold is hovering around $2000 per ounce, near its historical high. Unusually, despite a significant increase in real interest rates in the United States in 2022 and 2023, gold remains at this level. Before 2008, the correlation between gold and real interest rates was low and it was more in line with its characteristics as a commodity (including demand for jewelry and emerging market currencies). The real turning point came after the global financial crisis in 2008, when governments around the world introduced large-scale quantitative easing policies, which involved issuing money to buy more government bonds in order to lower interest rates. From an investor's perspective, this change triggered concerns in financial markets about long-term currency depreciation, and gold was heavily bought due to its characteristics as a currency. Therefore, over the past 15 years, the relationship between gold and the real return rates of bonds has become more closely linked. From an investment perspective, the two were initially complementary, but their relationship later broke down. Historical data shows that the policies of the Federal Reserve are still closely related to the demand for gold as a currency asset in the West. Similar to 2013, the Federal Reserve is currently trying to normalize monetary policy and start reducing its balance sheet, leading to quantitative tightening, as well as a significant increase in interest rates, which increases the opportunity cost of holding gold. What is the current situation? The amount of physical gold held by exchange-traded funds (ETFs) in Western countries has fallen significantly, dropping by over 25 million ounces from its peak. In recent quarters, Schroders Global Investment has found a significant decline in demand for gold bars and coins in Europe, especially in Germany. Schroders Global Investment also found that sentiment in financial markets towards gold is extremely negative. While these demand relationships have not suddenly disappeared, another strong demand source is enough to offset the negative selling pressure from Western countries, thus having a lower impact on the price of gold. It is worth noting that in early 2022, real interest rates began to rise rapidly, leading to a divergence between the price of gold and real interest rates. Given that the price of gold had been fluctuating in the range of $1800 to $2000 per ounce, relative to the high level of real interest rates, the turning point seemed to occur in the first quarter of 2022, coinciding with the outbreak of the Russia-Ukraine conflict. The biggest variable in gold demand has always been central bank demand worldwide, which is directly related to the conflict between Russia and Ukraine and the responses of Western countries. According to data from the World Gold Council, besides central banks worldwide, demand for gold bars and coins in China and Middle Eastern countries continues to be strong, hitting record highs. Comparing retail demand in China from 2013 or earlier periods, or public investment demand, there is a clear contrast. Due to the lack of places for capital to go, gold has benefited as a result.