Hualong Securities has released a research report stating that the conflict between the U.S. and Iran continues to escalate with no clear turning point in sight in the short term. Soaring energy prices are raising inflation expectations while simultaneously fueling concerns about economic growth. In the near term, gold is experiencing increased volatility, though its long-term investment rationale remains intact. The demand narrative for industrial metals faces challenges. The report recommends focusing on leading gold producers with scale advantages and dividend characteristics, such as Zijin Mining Group Company Limited (601899.SH), Shandong Gold Mining Co., Ltd. (600547.SH), and Zhongjin Gold Corp.,Ltd. (600489.SH). The main points from Hualong Securities are as follows.
On March 18 local time, the Federal Reserve's interest rate meeting announced that the target range for the federal funds rate would remain unchanged between 3.5% and 3.75%. This decision was in line with market expectations, marking the second consecutive time the Fed has held rates steady this year. Geopolitical conflicts are pushing inflation expectations higher. With the dual objectives of controlling inflation and supporting growth, the Fed's room for policy maneuver is becoming increasingly constrained, leading to the maintenance of the current policy rate level.
Since the outbreak of the U.S.-Iran conflict, factors such as disruptions to shipping in the Strait of Hormuz have caused a short-term surge in crude oil prices, directly driving up U.S. energy costs and inflation expectations. This has loosened the market's previous stable narrative of interest rate cuts. The Fed's latest interest rate meeting raised the 2026 core PCE inflation forecast from 2.4% to 2.7%. Concurrently, the GDP growth forecast for 2026 was revised upward from 2.3% to 2.4%. Under the dual pressures of resilient economic growth and persistent inflation, the Fed has limited flexibility in its forward guidance.
The dot plot conveyed a hawkish signal, suggesting there may be room for only one 25-basis-point rate cut throughout the entirety of 2026. In the subsequent press conference, Chairman Jerome Powell emphasized that since the escalation of Middle East tensions on February 28 triggered sharp fluctuations in oil prices, the rebound in energy prices would push inflation higher. However, the scope and duration of this impact remain difficult to ascertain.
Amid expectations of a more hawkish Federal Reserve, gold is facing short-term volatility, while industrial metals are expected to come under pressure. Following the rise in inflation expectations driven by energy prices, the Fed's hawkish turn is putting pressure on gold in the short term, as its safe-haven appeal weakens. A secondary strengthening of the U.S. dollar is also exerting significant downward pressure on the gold price. Nevertheless, from a long-term perspective, the underlying logic of concerns over sovereign credit risk in a long cycle remains unchanged.
Industrial metals like copper and aluminum are facing a dual squeeze from rising costs and weakening demand. In the previous market cycle, copper and aluminum benefited from tightening supply and improving demand expectations. However, against the backdrop of escalating conflict, the expectations of rising energy costs and a weaker long-term economy are challenging the bullish narrative for industrial metals, creating downward pressure.
Risk warnings include: further escalation of the U.S.-Iran conflict; normalization of a blockade in the Strait of Hormuz; setbacks in the U.S. economic recovery; risks associated with changes in the Fed's interest rate cut pace; and data citation risks.
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