On January 11, renowned analyst and Chief Investment Officer of Lianhua Asset Management, Hong Hao, delivered a speech titled "Outlook 2026: Holding for Abundance" at the 2026 China Chief Economists Forum Annual Conference.
Hong Hao pointed out in his speech that it is highly probable the Federal Reserve will continue to cut interest rates in January.
He believes that short-term liquidity in the U.S. is currently tightening, with repo rates even exceeding the benchmark rate, forcing the Fed to persistently expand its balance sheet and implement rate cuts.
Simultaneously, he proposed that long-term U.S. inflation expectations are unlikely to recede; if the Fed insists on cutting rates while inflation expectations remain high, it will undermine dollar credibility and drive up precious metal prices.
From a trendline perspective, gold is at a relatively fair valuation, around $4500. However, within the new credit system, gold serves as the "anchor" for all valuations.
Regarding target prices, Hong Hao stated, "The target is as high as the cup is deep," indicating that silver's rally is clearly not over, which aligns completely with his previous views. Although he suggested taking phased profits when silver surged past $80, he remains bullish on its medium-term upside, and indeed, silver has experienced significant price fluctuations since then.
His global liquidity indicator model shows that global liquidity conditions are continuously improving, with the liquidity indicator leading fundamental changes by 6-12 months. Hong Hao emphasized that against the backdrop of persistently loose global liquidity, asset classes anchored to gold will broadly benefit.
Concurrently, he judges that 2026 might be at the peak stage of a major stock market return cycle, and synchronized easing by global central banks will likely create a significant bubble; this bubble represents an opportunity for investors to "alter their fate."
Furthermore, in a recent Bloomberg interview, Hong Hao optimistically stated that in an environment of abundant liquidity, he favors all types of assets. In fact, during the market correction last November, he clearly indicated that 4000 points could become a new support level next year; now, at the start of the year, the market has quickly surpassed 4100 points.
Investment Report (liulishidian) has compiled the key points from Hong Hao's two presentations as follows:
A Fed rate cut in January is a highly probable event. Let me discuss some less conventional aspects. First, why is the Fed cutting rates? This chart shows the change in the total size of the Fed's balance sheet, based on our analysis. From the chart below, you can see the Fed's balance sheet reduction started from a peak of $9.1 trillion in 2022 and has been reduced to just over $6 trillion currently.
This $3 trillion reduction occurred alongside a decrease in new job creation within the U.S. economy, or a reduction in the rate of increase of new jobs. Therefore, one cannot claim that the Fed's balance sheet reduction has had no impact on the real economy; clearly, the impact on the economy, especially for low-income groups, is substantial. Yet, the S&P 500 continues its relentless upward climb, and S&P earnings are continually increasing, so one also cannot say the U.S. stock rally lacks fundamental support. Now, with the Fed's balance sheet around just over $6 trillion, we see short-end liquidity beginning to tighten. This is evident in the repo market, which dipped to around $100 billion at its lowest, a very low level. Simultaneously, repo rates have been soaring, even far exceeding the Fed's benchmark rate. It's important to understand that for short-term liquidity, the repo market is a primary source; if funding is unavailable in the repo market, it affects the functioning of various financial markets. For example, basis trades, which are highly popular among hedge funds, experience a significant increase in financing costs at the short end. Therefore, back in November, when we were looking ahead to 2026, I believed the least uncertain prediction was: The Fed will continuously expand its balance sheet and implement substantial rate cuts; this is already happening. Balance sheet expansion has already begun, and a continued rate cut in January is highly likely. It's estimated that candidates for the next Fed Chair could be announced in January. If that happens, and a Trump ally takes the helm, the probability of the Fed continuing and significantly cutting rates is very high.
Long-term U.S. inflation expectations are stubbornly high. Discussing Sino-U.S. relations, this chart first illustrates two key points: One, China's current account surplus is continuously reaching new highs, the blue line shows the relative strength of Chinese exports is steadily rising. But simultaneously, we see U.S. long-term inflation expectations, represented by the white line,
Looking at this chart, it seems quite evident to me; if someone claims U.S. long-term inflation expectations can be controlled, I disagree. However, it's very possible that short-term U.S. inflation could decrease due to influences from rent, utilities, and other short-term factors. But, we all know the most critical factor in financial markets is long-term inflation expectations, not short-term rates. Observing the U.S. yield curve, the long end hasn't decreased much, hovering at high levels or even rising. But we will see short-end rates begin to decline as the Fed's benchmark rate is cut, leading to a steepening yield curve. So, consider this: if U.S. long-term inflation expectations cannot be controlled, and if the Fed stubbornly cuts rates despite high inflation expectations, it will inevitably lead to continued surges in precious metals, it's that simple, because dollar credibility will be eroded.
Within the new credit system gold is the "anchor" for all valuations. Please look at this chart showing gold's performance over the last nearly 40 years. We created a simple log index and added a red trendline.
There are two arcs on the chart, one deep and one shallow, forming a very standard "cup and handle" pattern. Statistically speaking, in recent years, once this "cup and handle" structure appears, the probability of an upward move is nearly 100%. Is gold at $4500/oz high or low? If you don't know whether $4500 is high or low, you dare not buy, right? Because it was just over $2000 at the start of last year, it has already doubled. From a technical analysis perspective, "the target is as high as the cup is deep." Looking at the current trendline, gold is at a relatively fair valuation, around $4500. But, within the new credit system, gold is the "anchor" for all valuations. As mentioned earlier, when long-term inflation cannot be effectively controlled, and the Fed stubbornly continues cutting rates and expanding its balance sheet, the impact on dollar credibility is predictable. If this happens, we return to a pre-Bretton Woods world, where gold is used to price all valuations. For instance, before 1972-1973, oil was priced in gold. Throughout thousands of years of human history, gold has always been a primary circulating currency, so as long as gold doesn't fall, other assets will rise, it's that simple.
The target is as high as the cup is deep. Anchored by gold, silver's rally isn't over. Let's look at silver. The yellow line is our log index chart of silver over a 60-year major cycle. The white line represents silver's returns.
We see silver has actually formed a massive 60-year "cup and handle" pattern. The "cup and handle" pattern for gold we saw earlier spanned about 20 years, forming from around 2011 to now. But look at silver's "cup and handle" – it's exceptionally clean, textbook perfect. As we said, the target is as high as the cup is deep, so, has it peaked at $80? It definitely has not. Observing the overall market trend, if we price other commodities relative to gold, we see ratios like gold/silver, gold/copper, and various ratios of gold to non-ferrous metals, all still at historical lows. If $4500 is a fair price for gold, then for other assets, we need to use our imagination. New highs are meant to be bought; those who fear heights have a hard lot.
Global liquidity conditions are improving. Don't think I'm using purely technical analysis for investment advice. Look at this chart; the white line is our global liquidity indicator. This indicator aggregates hundreds of liquidity and monetary indicators from major global economies. We fit these into the single white line.
Keynes said, "Money is the bridge between history and the future." If I want to make predictions, I only need to know how monetary conditions are changing, and I can roughly estimate the future trajectory of asset prices for you, it's that simple. At the end of last December, we saw global liquidity continue to rise. We just analyzed why the Fed is eager to cut rates and expand its balance sheet, and later we'll see the Chinese central bank also entering a balance sheet expansion cycle. Fitting all these major central banks' monetary conditions together gives us the white line, showing global liquidity conditions are continuously improving. Our liquidity indicator leads global asset prices by 3-6 months, and stock market trends lead fundamental changes by 3-6 months. Therefore, our liquidity indicator leads fundamental changes by 6-12 months; it's a long leading indicator, a very effective one. So, silver's rally is clearly not over, and liquidity indicators will continue to improve.
The peak of the cycle this year is the time to alter one's fate. Let me show you the 35-year cycle of S&P returns. The yellow line is our cyclically adjusted S&P return cycle.
The first trough appeared in 1939, the second in 1974, and the third trough in 2009. The interval between each trough is approximately 35 years. Each 35-year major cycle equals 2 medium cycles of 17 years, and each 35-year major cycle equals the superposition of 10 small cycles of 3.5 years. This is absolutely not a coincidence; even the timing aligns perfectly. Our last trough was 2009, now it's 2026, 2026 is about 17 years from 2009, so we are at the peak of this cycle. Generally, when we reach the peak of a cycle, many interesting things happen. For example, bubbles; various assets everyone had forgotten about start soaring wildly, even non-ferrous metals with the weakest fundamentals experience massive rallies; new asset classes, like digital currencies, emerge. Therefore, the peak of the cycle is the time to alter one's fate. 2026 is the Year of the Horse in the Chinese zodiac, specifically the Bing Wu year in the 60-year cycle. Bing Wu embodies pure Yang energy; Bing is Yang Fire, Wu is also Yang Fire. Bing Wu corresponds to the Li Gua (Fire trigram), which is also pure Yang. Bing Wu Li represents three fires, hence, in Chinese tradition, a year like Bing Wu is called the "Red Horse and Scarlet Sheep" year; this year, with three fires burning together in the Bing Wu year, the flames will certainly burn brighter. Global central banks are simultaneously cutting rates and expanding balance sheets, not just the U.S. Fed; the Chinese central bank is also set to cut rates and expand its balance sheet. The Fed's rate cuts and balance sheet expansion have created room for the PBOC to do the same. The Bank of Japan is raising rates, but its pace of hiking is far slower than the rise in its inflation, making such hikes almost ineffective, hence the yen continues to depreciate sharply. Under conditions of such abundant liquidity, with three fires burning together, it is highly likely a great bubble will be born. As we mentioned earlier, bubbles are precisely the time for investors to alter their fate.
Highlights from Hong Hao's recent Bloomberg interview, translated by Investment Report (Liulishidian): Market sentiment is warming with signs of cyclical recovery perceived. Q: In the initial phase of this year, the trading volume leading this rebound has been quite substantial. What do you think is behind this? Hong Hao: If you observe the leading sectors in the market now – on one hand, the tech sector is advancing at full speed, on the other hand, the industrial metals sector is also performing very strongly. So I believe many industrial stocks are actually making a comeback, making people perceive signs of a cyclical recovery – even though economic data hasn't reflected it yet. But market sentiment has already warmed up, investors have disposable funds, so they are prepared to return to the market. Moreover, market liquidity remains positive and is still rising. Therefore, I believe the current environment is favorable for risk investment.
Gold and silver will continue rising after consolidation. The Yuan's appreciation potential extends far beyond current levels. Q: A few days ago you posted your 2025 predictions on platform X. We also made a chart, "What did Hong Hao predict correctly for 2025?" Do you still hold the same views regarding the parts you predicted correctly? Hong Hao: I think gold and silver were probably my most prominent correct predictions for 2025; I got them completely right. Moreover, I believe this trend is still ongoing. So, I think after consolidation, gold and silver could rise significantly from current levels. Chinese tech stocks also performed brilliantly in 2025, leading the market persistently until mid-October for the first three quarters, after which the rally paused slightly. The Renminbi's performance has also been astonishing, showing considerable resilience in 2025 and continuing to appreciate into 2026. I believe the potential for Renminbi appreciation extends far beyond current levels. Commodity prices are also breaking through highs.
With abundant liquidity, all assets are favored. Q: Do you foresee the Renminbi's appreciation facing resistance from the central bank? At what point might they start to disagree with, or at least be unwilling to tolerate, this appreciation trend? Hong Hao: I think the central bank has been signaling that its tolerance for rapid Renminbi appreciation is limited, as it could interfere with domestic monetary policy implementation and erode the competitive advantage Chinese exports have enjoyed in recent years. But now it's not entirely up to the central bank; it's foreseeable that a divergence between the reference rate and the market rate will begin to appear. Furthermore, entering the new year, given the Renminbi's prolonged undervaluation – over the past few years, the Renminbi's real exchange rate has depreciated by nearly 30%. Against the backdrop of persistently strong exports and a widening trade surplus, how does one explain the Renminbi's actual depreciation in recent years? Therefore, I believe this sets a solid foundation for Renminbi appreciation this year. In an environment of continuously abundant liquidity, we favor all types of assets, the only difference is the extent of their gains. Thus, we remain bullish on industrial commodities, gold and silver, Chinese tech stocks, and the Renminbi; the trends that started from the end of last year will continue into this year.
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