Review report of non-ferrous metals industry: the conflict between Russia and Ukraine aggravates the risk aversion value of gold [institutional review]

Recently, the conflict between Russia and Ukraine has shown a trend of further deterioration. It is reported that the US government is considering further sending more US troops to eastern Europe to strengthen its deterrence against Russia. So far, troops, including up to 8500 soldiers, are on high alert.

Comment

Under the intensification of geo-conflict, the gold plate rose against the trend. At the close of trading on January 25, the Shanghai Composite Index closed at 3433.06 points, down 2.58% for the whole day, while the Shenzhen Composite Index closed at 13683.89 points, down 2.83% for the whole day. On the market, only a few concept sectors such as gold rose. Among the plate stocks, Hunan gold and western gold rose by the daily limit of 11.54 yuan and 13.03 yuan respectively, Hengbang shares rose 3.05% to 11.83 yuan, China Gold rose 2.79% to close at 8.47 yuan, Chifeng gold rose 2.61% to close at 15.72 yuan, Shandong gold rose 2.54% to close at 20.17 yuan, and Yintai gold rose 1.67% to close at 9.11 yuan.

Gold investment has obvious risk aversion attribute, and the allocation value is highlighted under the intensification of international contradictions. Gold tends to rise during the upward period of global systemic risk. According to the International Gold Council, during 9 / 11 in the United States, the Sipp 500 index fell 7.99%, Loco-London gold is up 7.69%; during the global financial crisis in 2008, the Sipp 500 index fell 47.76%, Loco-London gold is now up 47.17%; during the Brexit process, the Sipp 500 index fell 5.34%, Loco-London gold is now up 4.94%. Affected by the escalation of the conflict between Russia and Ukraine, global stock markets fluctuated to a large extent, with the panic index (VIX) rising 3.64% to close at 29.9 points. Gold prices are expected to rise against the backdrop of escalating geopolitical conflicts and rising global stock market volatility.

Inflation and other issues continue to deduce, and the upward momentum of gold increases. Judging from the current inflation rate, CPI in the United States grew at a year-on-year rate of 7% in December 2021, the highest growth rate in the United States in nearly 40 years. On the other hand, international crude oil prices have continued to rise in the near future. as of January 24, 2022, Brent crude oil and WTI crude oil futures closed at $86.27 per barrel and $83.31 per barrel, respectively, up about 10.9 per cent and 10.8 per cent from the level at the beginning of the year, respectively. Against the backdrop of rising prices of commodities such as crude oil, the current inflation level is expected to continue to rise, and the upward momentum of gold is expected to increase.

Negative factors such as interest rate hikes were released ahead of time, and the resistance to the rise of gold gradually decreased. It is widely expected that the Fed will raise its current target interest rate in 2022. Looking back at the Fed's previous rate hikes, the price of gold has risen in the last two rate hikes. So the Fed's rate hike does not necessarily have a substantial negative impact on gold prices. At the same time, gold prices have been adjusted for nearly 18 months, negative factors such as interest rate hikes have been released ahead of time, market worries have slowed down, and resistance to rising gold prices is gradually decreasing.

Investment suggestion

In the context of the intensification of geo-conflicts, the risk aversion function of gold may continue to promote its price upward, and related producers in the gold industry may benefit, such as Zijin Mining, Chifeng Gold, Yintai Gold and so on.

Risk hint

International geopolitical changes, abnormal fluctuations in commodity prices, macroeconomic policy changes.