The big jump in gold prices over the Spring Festival attracted worldwide attention. As gold prices are especially sensitive to uncertainties in international economic and political circumstances, it is not difficult to explain the sharp increase in gold prices during the Spring Festival.
During the same week, the world's major stock markets plunged, with the US Standard & Poor's 500 Index falling to the lowest point in two years, while major stock indexes in Britain, Germany and France declined by more than 5 percent. And Japan's stock market fell by 11.1 percent, the biggest weekly drop since the 2008 financial crisis.
This degree of global stock market fragility hasn't been seen for years, and it's largely because of concerns over a possible slowdown in global economic growth. The less-than-expected growth of industrial output in December 2015 among major European industrial powers - including Britain, Germany, France and Italy - undoubtedly spread alarm about the global economy. And even though the US initiated a new round of interest rate rises last December, Federal Reserve chief Janet Yellen cautioned earlier this month that "there is always some chance of a recession in any year."
Meanwhile, the differences in the yields between long-term and short-term US government debt have narrowed, out of dampened expectations for the short-term economic situation and desire for safer investments. The buying spree of long-term government debt could drive up bond prices and drive down yields, consequently flattening the yield curve and causing difficulties for the banking industry and stock market. Furthermore, the negative interest rate policies adopted by some European countries and Japan may have contributed to the recent market volatility.
The plunge in oil prices has also had an impact on global markets, because of its effect on the economies of major oil producers.
All these factors have exacerbated market concerns and increased risk aversion, which is the main reason for the surge in gold prices. Global markets have rallied since after the Spring Festival, and gold prices have slipped back to a certain degree, but these movements are merely temporary technical adjustments as concerns over global economic fundamentals are unlikely to be resolved in the short term. It is believed that there is still room for gold prices to rise further.
Aside from the factors prompting the surge in gold prices, we should focus on how these factors are influencing China's economic situation.
Due to increasing correlation among the world's economies, consistency in the performance of global markets has become more apparent. Although China has relatively stable economic fundamentals, it is still difficult for the country to charge ahead amid a global economic slowdown. Also, now that China has become the world's second-largest economy, China should no longer depend on the external market as its main driver of domestic economic growth. Instead, the country should shoulder greater responsibility for promoting global economic development and prosperity. Under these circumstances, downbeat expectations for the global economy will inevitably affect the stability of China's economic development.
China is now simultaneously dealing with the slowdown in economic growth, making difficult structural adjustments and absorbing the effects of previous economic stimulus policies. This means that a more loosened political and economic environment is needed to deal with reforms in economic structure and upgrading.
The difficult external environment will pose bigger challenges for Chinese reforms, and negative interest rates are likely to bring about fiercer competition among global currencies, bringing dilemmas for China's financial and monetary policies and making it necessary for China to take prudent steps in terms of financial internationalization. The plunge in commodity prices, including oil prices, might benefit China in terms of imports, but huge domestic overcapacity might become an even greater burden for China this year.
The fact that global and domestic markets have stabilized after the Spring Festival reflects confidence in China's reforms to a certain extent. China's economic path for 2016 is likely to be similar to the movements of gold prices - there might be risks and volatility, but the fundamentals are solid. A cautiously confident attitude is needed to continue deepening reforms, and to avoid potential systemic risks brought by international capital flows and financial crisis.（做者萬喆是全國金條團體首席總裁成本歷史學家）