Source: Broker China
The market was stunned once again!
After “Six Lianyang” was superimposed by “Jiulian Yang,” the price of gold continued to soar and reached new highs at a faster rate. As of the latest, the international gold price has broken through the 2,230 US dollars/ounce point, and this is less than 10 days since it broke through the 2,220 US dollar point on March 20. Meanwhile, on March 29, A-shares staged another “gold war”: many gold stocks took turns to rise, and related gold-themed ETFs rose more than 4% on the same day, making it the most “beautiful” ETF of the day.
Judging from what many Chinese reporters from brokerage firms have learned, the “dovish” release of the Federal Reserve's latest interest rate decision and rising risk aversion are the main reasons why gold prices are once again rising. Institutional sources specifically mentioned that although gold began a continuous rise model since March, the flexibility of domestic gold stocks has not been fully released, and the divergence between the equity market and the commodity market is still quite large. Although there was a temporary lack of fundamental signal catalysts in the last week of March, we remain optimistic about 2024 gold in an environment where the interest rate cut cycle is compounded by global uncertainty.
Gold stock ETFs have accumulated a cumulative increase of more than 30%
By the close of trading on March 29, the Wind Gold Select Index (884106) had surged 7.11%, and the cumulative increase in the past 20 days alone had exceeded 20%. Judging from individual stock performance, Chifeng Gold rose and stopped strongly in the afternoon on the 29th, and Shandong Gold also rose as high as 7.91%. In addition, individual stocks such as China Gold, Yintai Gold, and Hunan Gold all rose more than 6%.
Boosted by these indices and individual stocks, the gold-themed ETF became the most “beautiful” ETF in the entire market on the 29th. Gold stock ETFs owned by Huaxia Fund surged 8.45% throughout the day, while gold stock ETFs owned by Yongying Fund rose 4.83%. Since the bottom of early February this year, the cumulative increase of both ETFs has exceeded 35%.
Looking further, while gold stocks continue to strengthen, there have been positive changes in the price of gold assets and the fundamentals of gold companies:
First, the gold price trend is rising. Up to now, the current price of gold in London has rebounded again after a recent high fluctuation, and has broken through the historical high of 2,200 US dollars/ounce for the second time. Looking at it in stages, this high price level is the result of the previous cumulative and steady rise. The current price of London gold first pulled out a “six lianyang” from February 14 to February 21, and then soon after, an even more spectacular “Jiulian yang” was pulled out from February 28 to March 11.
After a few days of rest, on March 20 and 28, they hit new highs twice. Prices broke through the 2,220 US dollars/ounce and 2,230 US dollars/ounce, respectively. Up to now, they have reached around 2,255 US dollars/ounce. Furthermore, in terms of futures markets, gold varieties have also performed well. Up to now, the price of Shanghai Gold's main force (AU888) has broken through 520 yuan before, and is now approaching a high of 530 yuan.
Second, the performance fundamentals of gold-related companies have rebounded. For example, according to the 2023 financial report released by Shandong Gold on March 29, the company achieved operating income of 59.275 billion yuan in 2023, an increase of 17.83% over the previous year; the corresponding net profit to mother was 2,328 billion yuan, an increase of 86.57% over the previous year. Shandong Gold said in its financial report that the increase in revenue was mainly due to an increase in sales volume and sales prices of self-produced funds, outsourced funds, and outsourced premium gold in the current period. Shandong Gold's mineral gold production in 2023 was 41.78 tons, an increase of 3.10 tons over the previous year, or 8.03%.
The Federal Reserve's “voice of pigeons” strengthens expectations of interest rate cuts
In response to the new rise in gold assets and gold labels, industry analysts believe that recent changes in monetary policies and risk aversion among major central banks around the world are the main reason.
Wang Xiang, fund manager of Bosch Fund, told the brokerage firm's Chinese reporter that last week (March 18 to March 22), many central banks around the world intensively announced monetary policies, which can be described as “Super Central Bank Week.” Among them, the Federal Reserve's interest rate decisions and policy outlook are dovish compared to market expectations, but the bitmap still maintains the guideline of cutting interest rates 3 times in 2024. The number of interest rate cuts from 2025 to 2026 alone dropped from 7 to 6, which strengthened the market's confidence in the Federal Reserve's interest rate cut in June, causing gold to continue to set a new record and jump above 2,200 US dollars at one point.
“Although optimistic macroeconomic data released by the US later prompted a rebound in the US dollar and triggered a profit settlement adjustment for gold. Under the influence of exchange rate fluctuations during the RMB Golden Week, the domestic and foreign price fluctuations also increased again, and uncertainty about the price of RMB gold will increase in the short term. RMB denominated gold has been adjusted quite limited under exchange rate hedging, and it still maintains a strong aggressive trend.” Wang Xiang said.
In addition, ICBC Credit Suisse Fund related sources also said that the safe-haven attribute is also the reason that is driving the rise in gold prices in this round. The haze of the US debt crisis continues, and frequent geographical conflicts also support the price of gold. The monetary and safe-haven properties of gold continue to expand, and countries continue to increase their gold reserves significantly based on reducing dependence on the US dollar and stabilizing the value of the currency. “Looking at the capital market, gold prices are greatly affected by macro-liquidity. Since March, gold has started a continuous upward pattern, but the flexibility of domestic gold stocks has not been fully released, and the divergence between the equity market and the commodity market is still large. At the same time, there is also a large differentiation among gold stocks, and the significant gap in fundamentals is one of the main reasons.”
Also, judging from the amount of gold reserves, Huaan Fund believes that gold has performed significantly better than US debt in the past two years. The reason behind this is that central banks around the world bought gold in the context of de-dollarization. In 2022 and 2023, global central bank net purchases exceeded 1,000 tons, a record high. According to the latest foreign exchange data from the Central Bank of China, gold reserves have been growing for 16 consecutive months, and the pace of gold purchases continues. “The share of central bank net purchases in gold demand has increased from 10% ten years ago to 25% in the past two years, becoming an indispensable factor affecting gold and hedging the slight weakening in gold investment demand.”
There is still uncertainty about the fundamentals of individual stocks
So, after gold reaches its current high level, will it still have investment value in the future?
The ICBC Credit Suisse Fund source mentioned above believes that with the extension of the continuous cycle of high gold levels, profits will be released more smoothly after the gold stock balance sheet is repaired. Currently, gold is in the interest-rate cutting trading period when the Federal Reserve stops raising interest rates until it clearly releases a signal to cut interest rates. Gold stocks are still on an upward trend after recently following a slight decline in gold prices.
“Gold prices are still expected to rise in trend and have long-term allocation value.” Wang Lele, ETF investment director of Wells Fargo Fund's quantitative investment department, believes that in the future, against the backdrop of US inflation beginning to decline and expectations of economic recession strengthening, the main axis of the Federal Reserve's monetary policy will also change, which will become an important underlying logic for determining the allocation of major global asset classes. “Market interest rates are likely to begin to decline before policy interest rates, and the downward slope will be steeper than inflation expectations, thereby driving real interest rates back down, and gold prices are expected to enter an upward channel. However, it is important to note that the rapid rise in gold prices in the early period may cause short-term prices to fluctuate.”
“From a short-term perspective, the favorable events have come true. As we expected, gold fully reflected the Federal Reserve's dovish signal. The last week of March temporarily lacked the catalyst for fundamental signals; in the medium to long term, in an environment where interest rate cuts are compounded by global uncertainty, we remain optimistic about 2024 gold.” According to Huaan Fund.
But that doesn't mean that the rise in the company's performance driven by the rise in gold prices will be smooth sailing. Shandong Gold said that changes in gold prices will bring great uncertainty to the company's operating efficiency. As the global economic situation remains severe and geopolitical turmoil intensifies, changes in national policies (such as monetary policy, fiscal policy, industry policy, regional development policy, etc.) and exchange rate fluctuations will have a great impact on product prices, which in turn will affect company profits.
Similarly, sources related to Noan Fund said that gold ETF holdings have continued to increase since mid-March, and the gold investment logic is gradually being interpreted from short-term safe-haven demand to a medium- to long-term volatile upward trend. The risk point may be that the time the Federal Reserve initiated interest rate cuts lags behind market expectations, and the uncertainty caused by the US presidential election. It is recommended to actively monitor the trend of gold prices.
editor/tolk