International gold prices have broken through the $2400 mark, with A-share precious metal stocks surging across the board. What's next?
Why has the international gold price recently skyrocketed? According to Everbright Securities, even though US economic data continues to exceed expectations, and even as expectations of a Fed rate cut weaken, gold still soars. Essentially, this round of gold price increases reflects hedging against the US dollar credit system. Rate cuts boosted gold prices at a certain point, but as in 2023, whether the Fed cuts rates or not, the gold price still shows a continuously rising central tendency under the continued gold purchases by global central banks. The monetary attribute of gold dominates this round of long-term upward trend in gold prices.
Time:
2024-04-13 13:12
On April 12, the London gold spot price broke through the US\$2400 mark during the European trading session. As of press time, the London gold spot price reached a high of US\$2400.63 per ounce, and the COMEX gold price reached a high of US\$2418.2 per ounce on the same day.
Why has the recent international gold price trend been so strong? According to Everbright Securities, even though US economic data continues to exceed expectations, and even as expectations for a Fed rate cut weaken, gold prices remain strong. Essentially, this round of gold price increases reflects hedging against the US dollar credit system. Rate cuts have boosted gold prices at certain points, but as in 2023, whether the Fed cuts rates or not, gold prices continue to rise under the continued gold purchases by global central banks, with the monetary attributes of gold dominating this long-term upward trend.
Regarding the future gold price trend, Dongwu Securities stated that their bullish view on gold prices remains unchanged, but for gold prices to reach US\$2500 per ounce in the short term, the keyword is \"inflation\". Resilient US inflation + a moderate commodity bull market (most importantly, oil prices stabilizing at US\$95 and reaching US\$100). Of course, an unexpected recession or a direct conflict between Israel and Iran could also have a short-term impact.
The institution further pointed out that the analysis of gold needs to distinguish between the long-term and short-term logic. The two most important long-term macro narratives may be the post-pandemic reverse globalization and the changes in the high-inflation macro environment, as well as the narrative that the credit currency system is being challenged. The consequences of this are the asymmetric \"decoupling\" of gold, US Treasuries, and the US dollar—US Treasury yields rise, the US dollar appreciates, and gold \"cannot fall\"—and gold may become more sensitive to inflation and commodities.
Ping An Securities believes that in the medium term, gold prices have risen significantly in the first quarter. The US economy still shows some resilience in the first quarter, with March non-farm payrolls and CPI data exceeding market expectations, and rate cut expectations have been repeatedly delayed. If the Fed's rate cut pace is unexpectedly faster, it may lead to gold price fluctuations.
In the long term, the US sovereign debt risk remains unresolved, the trend of reverse globalization continues, geopolitical issues overseas are fermenting, coupled with the global elections in 2024, the global macroeconomic environment remains relatively complex, the US dollar credit system may face continued weakening, and the global sovereign monetary system may be undergoing a long-term reconstruction process. The gold anchor is expected to be reshaped. During this period, as the demand for diversification and security of global reserve assets increases, the monetary attributes of gold are expected to continue to be highlighted, and the long-term gold price center is expected to continue to rise.
How to view the investment value of \"gold stocks\"?
It is worth noting that on the same day, the A-share precious metals sector surged across the board, with many stocks hitting new highs for the year. Zhongrun Resources, Chifeng Gold, Hunan Gold, Yintai Gold, Shandong Gold, and Zijin Mining rose by 10%, 9.60%, 6.82%, 6.30%, 5.88%, and 2.22% respectively. Among them, Zijin Mining and Yintai Gold hit record highs since their listing. Zijin Mining's daily trading volume was close to 4.3 billion yuan, with a latest A-share total market capitalization of 471.3 billion yuan and a circulating market capitalization of 378 billion yuan.
The surge in the A-share precious metals sector is inseparable from the driving force of capital. In its research report \"Monitoring the Capital Behavior of the Gold Stock Sector,\" Kaiyuan Securities stated that the CSI Gold Industry Stock Index (932265.CSI) consists of 39 constituent stocks, with business covering gold mining, smelting, and sales. The Gold Stock Index (932265.CSI) rose sharply by 16.4% in the first quarter of 2023 and has recorded a 38.4% return from the Spring Festival to April 10. Regarding the capital flow of the gold stock index, the institution pointed out that in terms of public fund real-time holdings, it has rapidly risen to a historical high since the beginning of the year; northbound funds have significantly increased their holdings after the Spring Festival; and financing balances have rapidly increased after the Spring Festival, while short selling is at a low level.
How to view the investment value of gold stocks currently? The volatility of gold stocks is generally greater than that of gold in the long run, and this phenomenon has strong logical support. Guotai Junan Securities believes that the core value of gold stocks comes from factors such as resource volume, ore grade, and production capacity. The price elasticity of gold stocks not only comes from the changes in current profits brought about by the increase in gold prices, but more importantly, from the exponential growth brought about by the increase in company asset value. Gold stocks, as a more elastic target, are more suitable to hold in an environment where gold prices are rising, especially when the overall valuation of gold stocks is low and there is a logical driver for gold price increases.
Tianfeng Securities holds a similar view, stating that the historical trend of gold stocks and gold prices is similar, but the elasticity is higher. At the beginning of this round of gold price increases, the elasticity of gold stocks is approximately 2.23 times that of gold prices. The profit release time of gold companies lags behind the performance of commodities, so there is a phased divergence between the performance of the equity market and the commodity market. However, with the continued rise in gold prices, the profit release will be smoother after the repair of the balance sheet of gold stocks.
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