The Zhitong Finance App learned that CICC released a research report saying that since 2022, the negative linear relationship between “London gold prices and actual US interest rates” has been distorted. Looking ahead, the bank believes that the commodity properties of gold are rising. The tightening of physical gold supply and demand supports that gold prices are highly immune to interest rate hike transactions, and this trend may support the continued rise in the gold price center. Firmly optimistic about major allocation opportunities in the A/H share gold sector. The bank believes that China's gold mine development is entering a policy inflection point. Combined with the restoration of the three major categories of listed domestic gold companies and the increase in capital expenditure capacity, it is important how gold companies achieve “safe growth” in the context of anti-globalization. Currently, domestic gold companies' growth and safety reassessment momentum is strong.

CICC's views are as follows:

Since 2022, the negative linear relationship between “London gold prices and actual US interest rates” has been distorted. The bank believes that this is not necessarily due to the fact that the Fed's interest rate cut expectations are being taken into account in advance, but because the commodity properties of gold are improving, and the tightening of physical gold supply and demand has supported the high immunity of gold prices to interest rate hike transactions. The bank believes that once the interest-rate cut deal starts, the price of gold is expected to enter an upward channel, and the increase is worthy of optimism.

On the demand side, the central bank's systematic increase in gold reserves is on the rise, and the two-wheel drive of consumer+investment demand has opened up new space for physical gold demand. The bank believes that the trend of de-dollarization and the systematic increase in gold reserves held by central banks around the world may become more prominent, and that there is great potential for growth in global gold reserves. Moreover, China and India are currently the world's top consumers of gold and jewellery. Against the backdrop of a positive economic recovery, there is still some room for growth in physical demand such as gold jewellery and gold bars, driven by the dual wheels of investment and consumption.

On the supply side, the bank believes that global gold supply is facing growth bottlenecks and needs higher price incentives.

First, global gold resource endowments are declining, production costs are rising, and the operating pressure on gold companies is rising. Since 2016, the production of AISC by global gold companies has continued to rise. The global average value for 1Q16 was 829.4 US dollars/ounce, and 2Q23 has risen to 1,370 US dollars/ounce, an increase of 65%, reaching another record high. In 2022, the total revenue of the world's top ten gold companies was +5% year-on-year, but the total net profit was -45% year-on-year.

Second, the capacity and willingness to spend capital is insufficient, exploration budget growth is weak, and the potential for increasing production is limited. The global gold exploration budget for 2022 was only 72% of 2012, with exploration for greenfield projects falling from 50% in 1997 to 24% in 2022. The unit detection cost in 2011-2020 was about 470 US dollars/ounce, 17 times the average detection cost from 1990 to 2010 of 28 US dollars/ounce.

Third, there has been a surge in mergers and acquisitions in the global gold industry, but the stock game is characterized by remarkable characteristics, and the increase is limited. First-tier and second-tier enterprises continue to optimize and integrate assets, and there are long-term opportunities for mergers and acquisitions in the market. Third-faction enterprises, represented by Chinese companies, actively lay out mergers and acquisitions, undertake asset sales in the first and second tiers, and rapidly increase production positions and resource reserves through extended mergers and acquisitions, yet the “stock game” is still the main focus.

Continue to be firmly optimistic about major allocation opportunities in the A/H share gold sector. In view of the fact that China's gold mine development is entering a policy inflection point; the restoration of the three major lists of domestic gold listed companies, the increase in capital expenditure capacity, and the rise in operating risks caused by anti-globalization, the reassessment of the growth and safety of domestic gold companies is strong.

Risk warning: The Fed's hawks exceeded expectations; the RMB exchange rate fluctuated more than expected; and the performance of gold companies fell short of expectations.