Institutions believe gold prices have largely exited their weak range, offering unique allocation value amid capital rotation, with gold stocks showing significantly higher elasticity than the metal itself.
As of 1:39 PM on August 7, the Shanghai Composite Index rose 0.70%, the Shenzhen Component Index gained 1.85%, and the ChiNext Index climbed 2.47%. Sectors such as components, medical services, and CRO concepts led the gains. In ETFs, the Gold Stock ETF Huaxia (159562) rose 1.26%, with constituent stocks including Zhaojin Mining Industry Co., Ltd. (000506.SZ), Jiangxi Copper Co., Ltd. (600362.SH), Zhuzhou Smelter Group Co., Ltd. (600961.SH), and Tongling Nonferrous Metals Group Co., Ltd. (000630.SZ) surging over 5%. Other gainers included Yuguang Gold & Lead Co., Ltd. (600531.SH), Jiangxi Copper Co., Ltd. (00358.HK), Lingbao Gold Group Company Ltd. (03330.HK), Zijin Mining Group Co., Ltd. (02259.HK), Zhongjin Gold Corp., Ltd. (600489.SH), and Shanjin International Gold Co., Ltd. (000975.SZ).
In terms of news, on August 6 Beijing time, London spot gold briefly broke above $4,300 per ounce, hitting a high since late June. Spot gold on the Shanghai Gold Exchange also rose over 2% for two consecutive trading days, breaking through 935 yuan per gram on August 6. Several major domestic gold jewelry brands reported a single-day increase of over 55 yuan per gram in their domestic gold jewelry prices. The gold market is experiencing significant capital inflows, with the largest gold ETF in Asia, Huaan Gold ETF, recording net inflows of over 60 billion yuan for 16 consecutive days.
Where to focus?
Huatai Securities stated that in the short term, after the sharp volatility in tech stocks, some funds are seeking opportunities outside the AI theme. Considering the difficulty for the AI chain to hit new highs, if tech stocks' rebound continues, the demand for capital rotation may even increase. With the correlation between gold and US Treasury yields declining and technical breakouts completed, we believe gold prices have largely exited their weak range. Against the backdrop of capital rotation, gold offers unique allocation value, with gold stocks having better elasticity; similar sectors may include small-cap, micro-cap, and software stocks. However, attention should still be paid to the impact of this Friday's nonfarm payroll data and subsequent remarks at Jackson Hole on gold price fluctuations. Over the medium to long term, structural issues such as the restructuring of geopolitical order, reserve diversification and central bank gold purchases, US debt sustainability, and Federal Reserve independence provide fundamental support for gold. However, as global central banks gradually enter a rate hike cycle, the US Treasury yield curve may face upside pressure, making it difficult for the US dollar to sustain a weakening trend. Thus, we remain cautiously optimistic about the upside potential for gold prices.
Why are gold stocks more resilient?
Dongfang Jincheng stated that gold prices are expected to fluctuate with a bullish bias this week (starting August 3). The core market contradiction lies in the verification of US fundamental data regarding the Fed's policy path, with factors like US-Iran tensions and exchange rate interventions serving as marginal disturbances. Specifically, despite last week's remarks by Fed Chair Powell on controlling inflation, the subsequent surge in 10-year US Treasury yields indicates the market is questioning the Fed's credibility. Therefore, the July nonfarm payrolls and CPI data to be released this week are crucial. If the July nonfarm payrolls data significantly misses expectations, it could alleviate market doubts and further lower rate hike expectations; conversely, Powell would need more hawkish rhetoric to enhance the Fed's credibility, which would in turn raise rate hike expectations and create volatility for gold prices. However, the US-Iran conflict and risks to navigation through the Strait of Hormuz remain important variables. Currently, there are signs of easing between the US and Iran. Additionally, the joint US-Japan intervention in the yen is suppressing the US dollar index, which are factors that could benefit gold prices. Overall, amid geopolitical easing and joint US-Japan exchange rate intervention, gold prices are expected to fluctuate with a bullish bias this week.
The Gold Stock ETF Huaxia (159562, connected funds 021074/021075) tracks the CSI Shanghai-Hong Kong-Shenzhen Gold Industry Stock Index. Due to the rigid cost structure of gold mining, rising gold prices drive profit growth. Combined with production expansion by gold miners, their earnings growth significantly outpaces the rise in gold prices. Therefore, gold stocks exhibit higher elasticity than the metal itself, often referred to as a "gold price amplifier." This makes them suitable for aggressive investors bullish on the gold industry chain. It also offers the lowest management fee in the sector.
Comments