Stagflation risk is coming, and gold is expected to reach a new high. The tense situation in Russia and Ukraine and the sanctions imposed by Europe and the United States on Russia exacerbated global inflation, commodity prices remained high, and the US CPI rose to the highest level in nearly 40 years. The Fed was forced to enter the cycle of rapid interest rate increase and table contraction, resulting in the upside down of the long-term and short-term yields of US bonds, the gradual fermentation of concerns about economic recession, and the increasing risk of global economic stagflation. In this context, the allocation value of gold is undoubtedly prominent, and the price of gold is expected to start a new round of rise and reach a new high;
Since the covid-19 epidemic, gold prices rose first and then fell. At the beginning of 2020, the covid-19 epidemic hit. The Federal Reserve launched an unprecedented large-scale water release and cut interest rates by 150 basis points within half a month. Other central banks followed suit one after another. The global liquidity easing that exceeded expectations pushed up the gold price. The gold price in London hit a record high of 2074 US dollars / ounce on August 6, 2020, surpassing the previous record high of 1921 US dollars / ounce (September 2011). Subsequently, the epidemic situation gradually became clear, the panic dissipated, the economy began to recover, the Fed’s expectation of raising interest rates shrouded, and the gold price began to callback, with a minimum of less than 1700 US dollars / ounce;
Driving force of gold price: stagflation concerns are driven by relay hedging. Since February 2022, the situation in Russia and Ukraine has deteriorated beyond market expectations, and risk aversion has increased, pushing up the gold price. The gold price has risen from $1850 / ounce to $2070 / ounce, close to the historical high two years ago. From historical experience, it is difficult for a simple war risk event to promote the continuous rise of gold prices, but the derivative effect of this situation is obvious. The supply chains of bulk commodities such as oil and gas resources, some metals and grain are challenged, exacerbating the already serious inflation situation. In the face of soaring inflation data, the Federal Reserve started the interest rate hike cycle on March 17, 2022, and released the market expectations of accelerating the pace of subsequent interest rate hikes and shrinking the table. Such a rapid tightening policy makes the market worried about the economic outlook. The recent upside down of us long-term and short-term treasury bond yields is the epitome of the market’s concern about recession. We believe that stagflation concerns have become a new driving force for the rise of gold prices by avoiding risks in Russia and Ukraine!
Economic fundamentals, risk events, real interest rate and dollar index affect the trend of gold price. Since the collapse of the Bretton Woods system in 1971, gold is no longer directly linked to the dollar. However, as a common currency, gold still plays an irreplaceable role in the international monetary system and financial markets. Its price fluctuates with global economic development, unexpected risk events, real interest rates and other factors, and changes in cycles. At present, the gold price research framework with high market recognition is that the gold price is negatively correlated with the real interest rate of the United States. More accurately, it is the real interest rate expectation, that is, the nominal interest rate expectation inflation expectation. At present, the market only sees the crazy interest rate increase of the Federal Reserve. It is expected that the interest rate will reach more than 3% this year, but ignores the upcoming double-digit inflation (the highest level in 40 years), and then superimposes the inversion of the recent US bond yield, The fear of economic recession is the coming of stagflation risk. Referring to history, in the context of stagflation, gold / gold stocks may be the best asset allocation.
Gold is bullish to $2600 / ounce. Stagflation concerns relay risk aversion, which is expected to make the gold price reach a record high, and the cycle of inflation interest rate increase recession interest rate cut is expected to be staged in the next 1-2 years. With the implementation of interest rate increase, the expectation of radical interest rate increase + rapid contraction did not make the gold price fall, indicating that the current market is more willing to price the future economic recession and the interest rate cut expectation of the Federal Reserve in the next year. In this context, we are optimistic that the gold price will break through a new high and is expected to reach US $2600 / ounce.
Key target: starting from the three dimensions of high proportion of gold business, continuous improvement of mineral gold output and continuous extension of resources, M & A, we recommend Chifeng Jilong Gold Mining Co.Ltd(600988) , Yintai Gold Co.Ltd(000975) , Shandong Gold Mining Co.Ltd(600547) , Zhaojin industry, Zijin Mining Group Company Limited(601899) and other high-quality companies.
Risk tip: the Fed raised interest rates more than expected; US economic growth exceeded expectations; The company’s performance is lower than expected.
