According to the ZHAOJIN MINING APP, Guosen released a research report stating that by the beginning of 2025 (up to March 14), the COMEX gold price increased by about 13.42%, and the Shanghai gold price rose by about 12.53%. Since the beginning of the year, the gold price has performed strongly, mainly due to: geopolitical risks, USA's increase in tariffs boosting risk aversion; the risk of forced settlements in London gold, due to concerns about the USA imposing tariffs on gold and auditing the Fort Knox gold vault, leading to a significant premium for COMEX gold over London gold, with large amounts of London gold being transported to the USA; the ongoing competition between China and the USA, significant breakthroughs in domestic AI technology innovation weakening the USD, and the decline of the USD index also being bullish for gold; statements from the Fed Chairman leaning towards dovish.

The main viewpoints of Guosen are as follows:

Gold prices continue to hit new highs and are expected to remain strong throughout the year.

USD credit: The USD's share in global Forex reserves has been on a long-term downward trend, driving the central level of gold prices higher. Since the beginning of the year, the USD index has quickly adjusted, mainly influenced by: 1) Recently, some macroeconomic data in the USA performed poorly, triggering market concerns over recession risks, while the Fed remains in the process of rate cuts, and the central level of US Treasury yields is declining; 2) The USA's fiscal system continues to face pressure, with the US Treasury reporting that in the first four months of this fiscal year, the federal budget deficit widened to a record USD 840 billion; 3) The USA’s imposition of tariffs has gradually led to market doubts about the USD's safe-haven properties.

Central bank gold purchases: Global central banks have bought more than 1,000 tons of gold for three consecutive years, far exceeding the average level of 473 tons from 2010 to 2021. Looking forward to 2025, geopolitical risks and economic uncertainties are likely to continue prompting central banks to regard gold as a stable strategic asset.

Geopolitical risks: The USA's trade war with the world is becoming increasingly severe, potentially triggering continued risk aversion. Additionally, the prospects of the Russia-Ukraine conflict and the situation in the Middle East remain unclear, which may continue to disturb market sentiment.

Interest rate framework: Expectations for the Federal Reserve to cut interest rates this year have increased. The PMI for US manufacturing in February is 50.3, lower than the expected 50.8; the CPI for February increased 2.8% year-on-year, lower than the expected 2.9%; the unemployment rate for February is 4.1%, higher than the expected 4.0%; non-farm employment increased by 0.151 million in February, lower than the expected 0.16 million. Recently, various economic data in the USA have fluctuated, and the market anticipates a total of three rate cuts totaling 75 basis points this year.

Gold prices and the prices of Golden Industrial Concept stocks have diverged, and future valuations are expected to recover.

From a one-year perspective (from the beginning of 2024 to March 14 of this year), the Shanghai Gold has risen about 41%, the Shenwan Nonferrous Metals Index has risen about 19%, and the Gold Stocks Index has risen about 27%, with gold prices performing better. The main reasons include:

1) In terms of production: The growth rate in the first two years has slowed, but is expected to accelerate in the next two years. According to Statistics and Forecasts from Guosen, the five core gold mining companies in the A-shares are expected to produce about 85.98 tons of mined gold in 2023, an increase of 2.54% year-on-year, approximately 92.27 tons in 2024, an increase of 7.32% year-on-year, reaching 108.30 tons in 2025, an increase of 17.37% year-on-year, and 122.30 tons in 2026, an increase of 12.93% year-on-year.

2) In terms of performance: Corporate profits have fluctuated, but the realization rate is expected to steadily improve. Since the beginning of 2020, gold prices have generally shown a trend of quarterly average increases, which should also reflect a trend of quarterly profit increases for gold mining companies. However, in actual operations, this is not the case; there are always various obstacles that lead to fluctuations in overall corporate profits. Guosen believes that as gold prices remain strong and companies achieve high profit status for several consecutive years, balance sheets will continue to improve, asset quality will continue to improve, and the realization rate of future performance is expected to steadily improve.

3) In terms of valuation: The valuation of Golden Industrial Concept stocks has continued to decline, with high cost-effectiveness expected in 2025. Statistics show that the valuation of A-share gold stocks has been continuously declining since the beginning of 2020, with dynamic PE (TTM) decreasing from about 50 times at the beginning of 2020 to the current 25 times. It is expected that the average gold price in 2025 will still show significant improvement compared to 2024. If the average price of gold on the Shanghai Exchange is calculated at 650 yuan per gram, it is expected that the PE for mainstream gold mining companies will be between 10 and 15 times in 2025.

Relevant symbols: SD GOLD (600547.SH), Shanjin International (000975.SZ), Zhongjin Gold Corp.,Ltd (600489.SH), Chifeng Jilong Gold Mining (600988.SH), Hunan Gold Corporation (002155.SZ), Zijin Mining Group (601899.SH), ZHAOJIN MINING (01818), Shandong Yulong Gold (601028.SH).