It is difficult to raise interest rates to beat inflation, and the real interest rate will continue to decline. After the epidemic, in order to stimulate the economy, countries have introduced a series of loose policies. Fiscal stimulus policies and interest rate cuts have led to the excessive issuance of global money. The money supply is greater than the money demand required for liquidity, which is the underlying reason for the continuous rise of inflation. According to historical data, the price of gold is highly negatively correlated with the real interest rate. At present, the real interest rate of 10-year US bonds has been at a historically low level. When the expectation of interest rate increase by the Federal Reserve has been digested by the market, the inflation expectation data is still high. With weak economic growth, it is expected that the tightening policy lags behind inflation, the real interest rate is difficult to beat inflation, and the price of gold is likely to reach a new high.
From a historical perspective: the performance of stagflation assets in the 1970s was resumed, and gold significantly outperformed other financial assets. Reviewing the characteristics of the stagflation period in the United States from the 1970s to 1980s, we believe that the economic recession under the expectation of high inflation is a signal of stagflation. At present, it is difficult to see the inflection point of global inflation. The green energy revolution, repeated epidemics, Russia Ukraine conflict and rising labor costs have all caused the disturbance of the supply side or the rise of supply costs. With the stimulation of demand under the loose policy, commodity prices continue to rise, driving inflation. At present, the long-term and short-term spreads of US Treasury bonds have been upside down, which is an important signal to reflect the expectation of economic recession. The US economy may enter a stagflation period. Looking back on the stagflation period in the 1970s, physical assets outperformed financial assets as a whole, and gold prices may usher in a trend upward.
From the perspective of the central bank: the world’s central banks have greatly expanded their tables, and the demand for increasing gold reserves is obvious. Since 2010, the central banks of various countries have purchased net gold for 12 consecutive years, among which the purchase of gold in emerging markets is relatively strong, reflecting that countries have begun to pay attention to the risk of their foreign exchange reserves since the 2008 economic crisis, especially in developing countries. In the context of the significant expansion of the global central banks, monetary credit is gradually challenged. Central banks will increase the demand for gold to maintain the stability of currency value and resist the risk of weakening US dollar credit. With the recent geopolitical risks in Russia and Ukraine exceeding expectations, under the influence of the central bank’s gold purchase behavior, risk aversion has heated up, gold ETF positions have rebounded, and there are obvious signs of rising investment demand.
Industry investment suggestion: Gold allocation opportunity is coming. Compared with gold, the value fluctuation of gold stocks is also affected by its fundamentals and other factors, resulting in the volatility of gold index greater than gold price. When analyzing the performance elasticity, we should focus on the proportion of mineral gold output, the comprehensive cost of controlling gold and the planning of increasing production and storage. As the trend fluctuation of the cost of mining gold relative to the gold price is negligible, the rise of gold price can directly lead to the rise of the profit of mineral gold business, and the performance with high proportion of mineral gold has greater flexibility to the performance of gold price.
Key companies: we recommend the Chifeng Jilong Gold Mining Co.Ltd(600988) \ international.
Risk tip: metal prices fell sharply; The project progress of the company is less than expected; Production safety risks; Political risks in countries where overseas mines are located.
