The Zhitong Finance App learned that Guojin Securities released a research report saying that in 2023, the growth rate of the cost of gold stocks will slow down. It is expected that in the first quarter of 2024, when gold prices rise month-on-month and cost control is relatively stable, gold stocks will perform well, and the current market value of gold stocks does not reflect many expectations of rising gold prices, so there is plenty of room to “make up for the increase”. Based on the measure of the Federal Reserve's first interest rate cut in June, the bank expects the Federal Reserve to release an “easing signal” in Q2, which will be the starting point for the main upward trend in gold stocks. It is recommended to focus on Shandong Gold (600547.SH), Zhongjin Gold (600489.SH), Yintai Gold (000975.SZ), Chifeng Gold (600988.SH), Zijin Mining (), etc. 601899.SH

Guojin Securities's views are as follows:

Under the combined effects of factors such as the release of good performance in 1Q2024 and the Federal Reserve's release of an “easing signal”, 2Q2024 will usher in an upward wave of gold stocks

The cost growth rate of gold stocks has slowed, and the first quarter results will be better released; the current market value of gold stocks does not reflect many expectations of rising gold prices, and may make up for increases in the future

In 2023, the unit cost growth rates of Shandong Gold, Yintai Gold, Hunan Gold, and Chifeng Gold were 3.68%/5.30%/2.05%/1.13%, respectively. The compounded mineral gold cost growth rates of the above companies in 2018-2022 were 9.63%/10.46%/9.86%/13.32%, respectively, and the unit cost growth rate of mineral gold declined in 2023. The bank believes that due to force majeure factors in 2018-2022, the growth rate of mineral gold costs for gold producers is high. Currently, the impact of these factors has been mitigated, and it is expected that the unit cost growth rate will be better controlled in 2024. The average price of 9995 gold on the Shanghai Gold Exchange in 1Q2024 was +4.05% month-on-month to 489.62 yuan/gram. The bank expects that with stable cost control and a month-on-month rise in gold prices, the Q1 performance of listed gold companies will be better released.

Shandong Gold, CICC Gold, and Yintai Gold's 2024E-ton equity production market value and PE level average have not reached historic highs. Currently, the highest expected gold price in 2024 is only 486 yuan/gram. Compared with the latest closing price of 529.86 yuan/gram of 9995 gold on the Shanghai Gold Exchange on March 29, there is still a lot of room. The current market value of gold stocks does not reflect many expectations of rising gold prices. The bank expects that after the Federal Reserve releases an “easing signal,” gold prices and gold stocks will experience a major rise in 2Q2024. At the same time, since the current market value does not reflect many expectations of rising gold prices, there is plenty of room to “make up for growth.”

The Federal Reserve may officially cut interest rates in June. Prior to that, the Fed's release of an “easing signal” may become the starting point for the rise in gold stocks

On March 1, Federal Reserve Waller hinted at a “reverse reversal operation”; later, on March 7, Powell stated that “it will take some time” for the Federal Reserve to more clearly shift its holdings to treasury bonds, and that reducing institutional mortgage-backed securities (MBS) holdings is a “long-term wish,” which is more consistent with Waller's previous statement. Considering that there was a buyback crisis in 2019, with the current decline in ON RRP, there may be more uncertainty about the overall liquidity situation, and the Federal Reserve may slow down or stop downsizing before officially starting to cut interest rates. Although the March FOMC meeting did not make a decision to slow down QT, Powell said at the press conference that the reduction in QT would happen soon. The current Fed Watch tool shows that the probability that the Fed will cut interest rates by 25 bps in June is 61%.

The bank believes that the Federal Reserve will release an “easing signal” before officially cutting interest rates. This “easing signal” point will be the starting point for the rise in gold stocks. Therefore, Q2 will usher in an upward wave for gold and gold stocks, and gold stocks will reach a phased peak after officially cutting interest rates once.

COMEX gold and gold ETF holdings increased, supporting the rise in gold prices

Since March, COMEX gold's non-commercial net holdings and gold ETF holdings have both increased. The bank believes that the main reason is that the market's expectations for interest rate cuts from the Federal Reserve strengthened in March, market trading interest rate cuts, and demand for gold investment brought about capital inflows. If these positions continue to increase in the future, it will support a further rise in gold prices.

Gold stock price volatility increased after the first rate cut

The year-on-year growth rate of core CPI segments such as healthcare and transportation services increased in the US in February. Judging from the leading significance of the year-on-year housing price data in 20 large and medium-sized cities in the US, the rise in housing prices may be transmitted to the US CPI housing segment in the second half of 2024; the inflation forecast shown by the 10-year break-even inflation rate increased from 2.21% in early 2024 to the latest 2.32%, and the US is at risk of re-inflation.

Federal Reserve officials raised real GDP growth and core PCE inflation expectations for 2024 at the FOMC meeting in March, and lowered their unemployment rate expectations. Based on the resilience of the US economy and the risk of possible re-inflation, the bank believes that June may be an “insured interest rate cut,” and that the future path of interest rate cuts will require follow-up economic data. The interest rate bitmap for the March FOMC meeting shows that if a US Federal Reserve official who supports cutting interest rates 3 times during the year changes his view, the number of interest rate cuts for the whole year may be reduced to 2. Therefore, after the first interest rate cut, the volatility of gold stock prices will increase.

Risk warning: Risk of the Fed's interest rate hike exceeding expectations, the risk of rising real interest rates, and the risk that the central bank's demand for gold purchases will decrease.