Why Gold No Longer "Preserves Value"?

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(Author: Xu Bin, Professor at Central University of Finance and Economics, School of Accounting)

Recently, precious metal prices have continued to decline, significantly weakening the appeal of gold investment. Why do long-term valuable precious metals like gold and silver experience temporary weakness? How should investors establish a systematic perspective to understand the operation logic of the capital market?

The reason precious metals are called “precious” lies in their scarcity and natural store of value, which is also why gold and silver historically served as currency. When precious metals no longer serve as “stabilizers” for currency, their value reverts to their utility, mainly in jewelry and decorative uses, with prices determined by market supply and demand. Therefore, in a country with overall stable currency value, it is difficult for precious metal prices to surge significantly. Their value fluctuations ultimately depend on the supply and demand game at the commodity level.

Second, in a market environment where the value of precious metals is no longer prominent, how should investors make precise allocations? Here, the emphasis is on investing rather than speculating: investing focuses on intrinsic value, while speculation pursues short-term price fluctuations. Technical trends in the capital market are difficult to predict accurately; various technical charts are essentially records of past prices and cannot reliably forecast future movements. There are many speculators who, overly trusting technical analysis, end up being exploited by major funds and losing everything.

Thus, truly mature investors often have a long-term vision, conducting in-depth research on a company’s financial health to grasp its true value. Even if short-term gains are not achieved, they can share in the long-term growth dividends of assets, avoiding severe losses. This is also an important reason why mature markets tend to be relatively stable. If one lacks the ability to interpret financial statements, choosing to allocate funds to products like mutual funds and bonds is a prudent risk-averse approach.

So, how should ordinary people participate in the stock market today?

The key is to align with one’s risk appetite and act within one’s means. Investors with higher risk tolerance can focus on stocks, especially in high-growth sectors like information technology, new energy, and artificial intelligence. However, these industries are volatile, so careful selection and rational allocation are necessary. Conversely, risk-averse investors are better suited to defensive sectors such as agriculture, forestry, animal husbandry, fishery, water, coal, electricity, and gas, which tend to operate stably with solid cash flow, and their inherent stability provides strong support for stock prices.

This article is an exclusive first publication by Yicai, and the views expressed are solely those of the author and do not constitute investment advice.

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