CICC Securities: From Left Trading to Right Trading Focus on Seizing the Opportunity of Gold Price Increase Before and After the First Rate Cut

According to the information from Zhitong Finance APP, Changjiang Securities released a research report stating that, at the current stage, returning to commodity price judgment itself, combined with the medium-term trend of de-dollarization, the short-term focus is on the upward opportunities of gold prices before and after the first rate cut. There may be two upward opportunities for gold prices within the window of the first rate cut: First, in the 2-3 months before the first rate cut, as the probability of a rate cut increases, the price rises; second, within 1 month after the first rate cut, the price rises around the probability and frequency of subsequent rate cuts. On the equity side, due to concerns about previous volatility, current performance valuations have all adjusted to below historical median levels or have already been sufficient. If gold prices continue to break through in Q2, equities may quickly converge, so it is recommended to focus on pure gold assets.

Key points from Changjiang Securities:

Phenomenon: Extreme deviation between equities and commodities

Recently, gold prices broke through $2500 per ounce, with commodities continuing to be strong. The core clue revolves around the expectation of the first rate cut in September, as US bond rates fluctuate bullishly. At the same time, A-share gold stocks continue to show weakness, diverging from gold prices amid concerns about medium-term trends, overtrading concerns, and delayed rate cuts, with no signs of convergence for a long time. To understand the deviation between the two, it is necessary to systematically review the mapping relationship between gold stocks and gold prices, the historical paradigm, and the logic changes behind this round of interpretation.

Review: Few historical divergences but strong synchronicity

Since 2016, A-share gold stocks have shown little divergence from gold prices. Gold, as a major asset class priced overseas, is sensitive to the US economic cycle, for which domestic investors do not have regional information advantages. Timing judgments usually lag behind overseas gold stocks and rely on commodity markets, which is significantly different from domestic priced products like steel and cement.

The mapping during the last bull market from 2018 to 2020 is a typical template: In terms of rhythm, there was strong synchronicity between gold stocks and gold prices, whether at the bottom or turning points, even at the end of the bull market, equities did not show early trading performance; In terms of elasticity, the start of rate cuts was a dividing point. The first wave/slowdown in rate hikes, the second wave/trading on rate cut expectations, highlighted the elasticity of equities resonating with profit valuations. However, after the start of rate cuts, valuations gradually peaked, relying solely on profits, weakening elasticity.

This round: Transition from left-side to right-side trading

This round, on the surface, the mapping relationship between A-share gold stocks and gold prices is more complex due to the learning effect. From 22 onwards, it has gone through three stages, transitioning from left-side/leading to right-side/lagging trading: Stage one/2207-2309, A-share gold stocks led gold prices and global gold stocks, with A-shares leading at two nodes: first, in 22Q2, oil prices peaked and US inflation weakened, A-shares led as gold prices did not stabilize; second, in 23Q2, A-shares bet on rate cuts in the second half of the year, leading as gold prices weakened with high interest rates. Stage two/2309-2404, gold stocks dulled or even diverged from gold prices, with the economic resilience in 23Q3 combined with supply disruptions pushing US bond rates above 4.9%, A-shares shifted from leading to cautious, and in this round, with no rate cut expectations, gold stocks began to diverge from gold prices. Stage three/2404-present, the dulling has further intensified, transitioning to right-side trading. Gold hit a historical high in April, A-shares became more cautious, and the trading pattern completely shifted to the typical right-side. During the new high market in Q2 this year, gold prices fluctuated, equities discounted valuations; during the initial breakout of gold prices, equities stagnated; The gold price continues to break through, and equities are quickly catching up. The current trend continues.

Analysis: The Discrepancy between Beta and Alpha

Equities are shifting towards right-side trading, still rooted in traditional beta thinking of viewing cyclical stocks, with concerns about short-term fluctuations leading to early realization. However, in this round, the strong performance of gold has so far demonstrated an independent alpha logic. With central banks continuing to buy gold and the trend towards de-dollarization, despite fluctuations in real interest rate frameworks, the central tendency is gradually rising. The gold pricing framework is gradually moving away from purely cyclical fluctuations, and the equity side should also pay attention to strong industrial trends: in the past four years of high gold prices, corporate profits have continued to improve, and the capital expenditure cycle is fully underway. The next two years will be the first year of A-share gold stocks' capacity expansion. Flattening of the cycle does not mean no volatility, but strengthening alpha through strong growth will increase safety margins.

Risk Warning: Significant shift in the Fed's interest rate stance; external disruptions from "black swan" events; geopolitical risks; failure of historical experiences