Hong Kong Stock Concept Tracking | Spot Gold Breaks Through the Historical Barrier of $2500! Still has significant upside potential, Gold stocks may usher in a "double-click by Davis" (with concept stocks)

According to the Wise Finance APP, on August 16th, Eastern Time, influenced by multiple factors such as the weakening of the US dollar, the expectation of a Fed rate cut in September, and geopolitical tensions in the Middle East, the international gold price hit a new historical high. The spot gold price broke through the key level of $2500 per ounce for the first time. London spot gold rose by up to 2.20%, reaching $2509.72 per ounce, closing at $2506.84 per ounce, up by 2.08%. Zheshang Securities pointed out that under the disturbance of the Fed's upcoming rate cut cycle, escalating geopolitical conflicts, rising uncertainty in the US election, etc., the gold price still has significant upside potential, but also needs to guard against potential liquidity disturbances and profit-taking disturbances after the first rate cut in the US.

At the same time, the price of gold for immediate delivery broke through the $2500 per ounce level last Friday, surpassing the historical record set last month. Poor performance in the US real estate market data further deepened expectations for a rapid and substantial rate cut by the Fed, which is usually favorable for gold due to lower interest rates.

Gold prices have risen by over 20% so far this year, mainly benefiting from optimistic sentiment towards loose monetary policies and significant purchases by central banks worldwide. Additionally, the demand for gold as a safe-haven asset has increased due to rising geopolitical risks, including tensions in the Middle East and the conflict between Russia and Ukraine.

Gold, as a special commodity, possesses the three major attributes of a commodity, financial asset, and currency. Furthermore, gold has three intrinsic values: strong value storage capability to combat inflation and depreciation; from an investment perspective, gold can be seen as a "zero-yield" asset, with its relative value changing inversely with the returns of other assets; naturally linked to fiat currencies, gold acts as a hedge against geopolitical risks and fiat currency risks.

From a long-term perspective, the price of gold has an inverse relationship with real US bond yields. Gold is a typical "zero-yield" asset, and investors' preference for gold investment depends to a certain extent on the real yields of other assets. When other assets offer relatively higher real yields, gold is usually not preferred, and vice versa. Asset real yields depend on nominal yields and inflation levels. When nominal yields decline and inflation levels rise, it usually means a decrease in real yields, enhancing the gold price effect.

Gold prices typically anticipate the start of a Fed rate cut cycle and exhibit distinct characteristics of anticipatory trading. Focusing on the two rounds of gold price rallies since the beginning of the year, there are underlying factors of market anticipation of the Fed rate cut that drove these movements.

In July 2024, a new round of gold price rally occurred, with a cumulative increase of 6.18% from July 1st to 17th. The core driver was the unexpected rise in unemployment rate and resonating decrease in CPI during this period, leading the market to fully anticipate a Fed rate cut in September, prompting another surge in gold trading. Since the latter half of July until now, gold prices have fluctuated due to adjustments in equity market prices. Recently, with the stabilization of equity markets, gold prices have shown a marginal upward trend again, with the main logic possibly still revolving around anticipatory trading for rate cuts In addition, the marginal enhancement of central bank gold purchases has become a distinct feature driving the current rise in gold prices. According to the World Gold Council's classification, gold demand mainly includes jewelry manufacturing, technology, investment, and central banks. Looking at the longer term, the starting point of the current rise in gold prices is roughly in the third quarter of 2022, with gold prices starting to rise from the bottom price of $1600-1700 per ounce, corresponding to the four major demands. A significant change is the substantial increase in the marginal strength of central bank gold purchases. In the third quarter of 2022, central bank gold purchases reached 458.8 tons, a significant increase of 189% compared to the second quarter, while the average quarterly gold purchase volume from the first quarter of 2010 to the second quarter of 2022 was only about 120 tons.

It is worth noting that during liquidity crises, gold prices usually experience adjustments. Gold's hedging function is relatively broad, and in environments where geopolitical conflicts, financial market adjustments, or other risk events or uncertainties increase, gold prices may rise. However, this does not include liquidity crises. Using the LIBOR-OIS spread as a global measure of liquidity levels, typically during the third quarter of 2008 financial crisis and the global public health event outbreak in March-April 2020, gold prices did not rise as expected in traditional frameworks of heightened risk aversion driving gold prices up. Instead, there were varying degrees of price declines, as there was a severe global liquidity crisis at those times, leading to the selling of gold as a relatively liquid asset.

TF Securities believes that with the Federal Reserve entering a rate-cutting cycle, liquidity may gradually loosen, providing further support for gold prices. Gold stocks have a duration attribute, and in a major bull market for gold, the typical path for gold stocks is for PE to rise first, followed by the rise in gold prices, gradual realization of gold stock performance, reaching a peak under the dual effects of PE net profit release, achieving a "Davis double hit".

Related concept stocks:

China Gold International (02099): China Gold International, a subsidiary of the State-owned Assets Supervision and Administration Commission, is the only central enterprise in China's gold industry. The company's main business involves the operation, acquisition, exploration, and development of gold and copper mines, currently operating the Changshan Hao Gold Mine (holding 96.5%) and the Jiama Copper-Gold Polymetallic Mine (holding 100%). The open-pit mining operations at Changshan Hao Gold Mine are gradually approaching the end of its mine life, with promising resource prospects. The Jiama Copper-Gold Mine has successfully resumed production, being a high-quality copper-gold mine.

Zijin Mining (02899): Zijin Mining is engaged in the development of copper, gold, zinc, lithium, and other resources globally. By 2024, benefiting from the upward trend in metal prices such as copper and gold, the company's overseas mine technical improvements, cost optimization, acquisitions, and expansion of mine capacity will continue to enhance the company's performance.

Shandong Gold (01787): Shandong Gold is a leading domestic gold listed company with abundant reserves. The company has accelerated internal mining rights integration and overseas development, with clear future production growth. The company has a high concentration of gold business, which can fully benefit from the rise in gold prices. In scenarios where gold prices grow by 15%, 24%, and 35%, Shandong Gold's profit increase ratios are 27%, 45%, and 63% respectively