The Zhitong Finance App learned that Guojin Securities released a research report saying that the self-production cost growth rate of gold stocks will slow down in 2023. It is expected that in 2024, when gold prices rise and cost control is relatively stable, gold stocks will perform well, and the current market value of gold stocks does not reflect more expectations of rising gold prices, and there is plenty of room to “make up”. It is expected that gold stocks will usher in the main upward trend. It is recommended to focus on Shandong Gold (600547.SH), China Gold (600489.SH), Yintai Gold (000975.SZ), and Chifeng Gold (600988.SH), Zijin Mining (02899) is the same standard.
The main views of Guojin Securities are as follows:
Looking at the long-term perspective, the price of gold is rising strongly
The high US fiscal deficit rate has brought momentum to the long-term rise in gold prices. The US fiscal deficit rate indirectly affects the price of gold through factors such as risk aversion, inflation expectations, and interest rate levels. Affected by force majeure factors in 2020, the US fiscal deficit rate soared to 14.7%. Although the 2022/2023 deficit rate quickly fell back to 5.4%/6.3%, it was significantly higher than the average of 3.3% for the 1968-2021 fiscal year. The CBO predicts that the average US fiscal deficit rate for the 2024-2034 fiscal year will be 5.6%, maintaining a historically high level. Guojin Securities's 2024 interest payment scale is about 1.18 trillion US dollars based on current US outstanding treasury bond balances and US bond interest rates, which is higher than the CBO forecast of 0.87 trillion US dollars in net interest. It is expected that the Treasury may need to expand the scale of debt issuance in 2024. The continued high fiscal deficit rate will bring long-term upward momentum to gold prices.
Increased monetization rates have contributed to a long-term rise in the price of gold. Since the subprime mortgage crisis, Marshall K values, represented by countries and regions such as the US, China, and the Eurozone, have risen rapidly. The growth rate of money supply has exceeded the GDP growth rate, and there is an expansion of liquidity in the market, leading to a rise in asset prices, including the price of gold. The further expansion of money supply in the aforementioned countries and regions in the context of fiscal deficits will provide sufficient impetus for the rise in gold prices.
The risk of re-inflation stimulates anti-inflationary demand for gold. Compare the current economic environment with 1980: the situation in the Middle East is tense, and the geographical conflict continues to stimulate safe-haven demand for gold; the US CPI rose above expectations in March, and inflation expectations reflected in the break-even inflation rate in 2024 continue to rise, and there is a risk of re-inflation. The core CPI housing segment growth rate may begin to rebound in the second half of 2024. Combined with the frequent decline in US non-farm payrolls data, if the situation in the Middle East continues to ferment in the short term, the US may be dragged into the plight of stagflation. Guojin Securities expects the gold price to reach 2,700 US dollars/ounce in 2025.
Gold production costs and central bank purchases support the long-term center of gold prices. Factors such as rising inflation and declining grade will cause gold AISC costs and mine incentive prices to gradually rise. From the perspective of cost support, the long-term momentum of gold prices will increase. Furthermore, the central bank's continued purchase of gold may provide long-term upward momentum for gold prices.
After optimization, the gold price model increased explanatory variables such as global central banks' gold reserves and gold ETF holdings
Guojin Securities pointed out that due to the gradual fermentation of the “anti-globalization” wave after 2016, a two-stage gold price return model was constructed using the end of 2015 as the boundary. The first stage model determines the six variables of CPI, actual yield, cumulative deficit rate, gold ETF holdings, geopolitical risk, and the US dollar index; the second stage model determines the six variables of CPI, actual yield, cumulative deficit rate, gold ETF holdings, geopolitical risk index, and global central bank gold reserves as explanatory variables. The factor that has the greatest influence on gold prices in the second stage model is the global central bank's gold reserves, followed by SPDR gold ETF holdings. After considering explanatory factors not included in the model, the price of gold is predicted to rise 15.9% to 2,352 US dollars/ounce in 2024 compared to 2023, and the price of gold is predicted to rise 12.9% to 2,655 US dollars/ounce in 2025 compared to 2024.
Is there still room for gold stocks compared to the price of gold under different valuation dimensions?
According to the multi-dimensional gold stock valuation system established by Guojin Securities, the current market value of equity production per ton of listed gold companies is in a high position, so the market value of the tonne equity resource volume & PB valuation dimension has been further introduced. In the vertical comparison, the market value of Shandong's gold ton equity resources is lower than that of CICC Gold and Yintai Gold for a long time.
Considering the asset-heavy nature of gold producers and the broad applicability of EBITDA, Guojin Securities added the EV/EBITDA valuation dimension. The average EV/EBITDA of 2024-2025 EA gold listed companies is 10.04 times. Compared with the average EV/EBITDA value of 15.29 times in 2016-2023, there is still a lot of room for improvement in the current valuation of A-share gold listed companies.
Risk warning
The Federal Reserve's tight monetary policy was repeated; the performance of gold companies fell short of expectations; the US economy improved beyond expectations.