[SMM News] Gold prices hit record highs, jewelry and precious metal sectors surged

As the conflict in the Middle East escalates again, the safe-haven properties of precious metals shine again! Gold prices continued to perform wildly in April, with Shanghai gold and COMEX gold hitting record highs on the 1st. On April 2, gold prices continued to hit record highs. After the U.S. dollar hit its highest level in nearly five months earlier on Tuesday, it weakened and declined. The U.S. dollar index fell 0.2%. In early trading on April 3, gold prices once again reached an all-time high. As of 9:57 a.m. on the 3rd, COMEX gold was quoted at US$2,302/oz, up 0.89%, and its historical high was refreshed to US$2,308.8/oz; Shanghai gold was quoted at 540.24 yuan/gram, up 1.63%, and hit a record of 540.76 yuan/oz; COMEX silver rose 1.65%, Shanghai silver rose 3.54%. The price of gold not only hit a record high in March, but also performed well in March and even in the first quarter. The monthly increase in Shanghai gold in March was 10.29%, the best monthly performance since August 2019; the monthly increase in COMEX gold in March was 9.74%, the best monthly performance since July 2020. In the first quarter, the Shanghai gold increase was 10.36%, and the COMEX gold increase in the first quarter was 8.83%.

In the morning session of the 3rd, precious metals and jewelry both saw sharp increases. As of 10:04 am on the 3rd, the precious metals sector rose 4.24%. In terms of individual stocks: Zhongrun Resources rose 9.89%, Sichuan Gold, Jingui Silver and Western Gold all ranked among the top in terms of growth. As of 10:05 a.m. on the 3rd, the jewelry sector rose 2.86%.

News front

[Gold is the most popular commodity futures market in March, with a turnover of over 3 trillion yuan] Statistics from the "National Futures Market Trading Situation in March 2024" released by the China Futures Association on April 2 show that, based on a unilateral calculation, the national futures market transaction volume in March was 630 million lots, with a turnover of 49.67 trillion yuan, down 13.56% and 0.46% year-on-year respectively. It is worth noting that among all commodities, gold is undoubtedly the most popular one. Gold trading volume in March exceeded 6 million lots, a year-on-year increase of 22.64%, and a month-on-month increase of 208.86%. The transaction volume exceeded 3.2 trillion yuan, a year-on-year increase of 44.48%, and a month-on-month increase of 225.20%.

The U.S. manufacturing sector grew for the first time in a year and a half in March as production rebounded sharply and new orders increased, but employment remained sluggish. There were "large-scale layoffs" and input prices rose. The Federal Reserve Bank of New York said on Monday that core inflationary pressures weakened in February. Traders see a 57% chance that the Fed will start cutting interest rates in June, according to CME Group’s FedWatch Tool. Although the dollar rose on the news, gold continued to strengthen.

The world's largest gold exchange-traded fund (ETF), SPDR Gold Trust, announced that as of Monday, its gold holdings were 826.98 tons (26,588,275 ounces), a decrease of 0.38% or 3.17 tons from 830.15 tons on the previous trading day.

Voices from all sides

As for gold prices reaching a new high, Jinyuan Futures said: The market’s bullishness in precious metals remains high. In terms of data, job vacancies in the United States in February were slightly higher than expected, the voluntary turnover rate was the lowest since 2020, and the number of layoffs was the highest in nearly a year. The number of JOLTS job vacancies in the United States in February was 8.756 million, slightly better than expected, and the previous value for January was revised down to 8.748 million. The voluntary turnover rate in February was 2.2%, the lowest level since 2020. Layoffs rose to their highest level in nearly a year as layoffs increased in the leisure and hospitality industries. The final value of the euro zone's manufacturing PMI in March was 46.1, a three-month low. The performance of manufacturing industries in the Eurozone is divergent. The PMIs of Germany and France continue to shrink, while Italy and Spain resume growth. German inflation has fallen for three consecutive months. Germany's CPI rose 2.3% year-on-year in March, lower than 2.7% in February and the market forecast of 2.4%. Food costs were the main driver of the slowdown in inflation. The probability of a rate cut by European Central Bank in June increased. The silver price has also risen sharply. We maintain our bullish view on the medium- to long-term trend of precious metals, but as the domestic short holiday is approaching and important data including the US non-farm payrolls data and Powell's speech will be released overseas, market volatility may intensify, so it is advisable to wait and see for now.

CITIC Group said that this round of inflation and asset price trends are very similar to the first wave of high inflation in the 1970s, and there are signs that US inflation will rise again in the future. Once the rebound trend in inflation is established and consumer confidence falls again, U.S. stocks will once again face downward pressure. Once inflation picks up again in the future and data confirms it, gold will have room for further gains.

Huatai Securities Research Report believes that in the first quarter of 2024, the domestic RMB-denominated gold and silver prices were better than the US dollar-denominated LME gold and silver prices, achieving positive growth both year-on-year and month-on-month. We believe that domestic gold and silver prices are better than overseas mainly because domestic monetary policy is easier. We believe that as liquidity in the United States returns to easing and major central banks around the world continue to maintain large-scale gold purchases, coupled with increased holdings of major global gold ETFs and geopolitical event risks, the LME spot gold price may rise to the range of US$2,600 to US$3,000; and many gold companies have increased gold production.

"Retail investors and central banks are being joined by momentum-following speculators who are adding to already elevated long positions following the breach above $2,200,” said Ole Hansen of Saxo Bank. Additionally, there is no doubt that geopolitical tensions add additional support. "

Independent analyst Ross Norman said: "Gold's rise is so unusual because major traditional headwinds remain in place, including a stronger dollar, higher U.S. Treasury yields and an increased likelihood that U.S. interest rates will remain high. In addition, we are entering a seasonally low demand period. You couldn’t imagine a worse backdrop.”

Gold's rally so far has been driven by aggressive buying by global central banks, said the World Gold Council's Cavatoni. Central banks are buying gold to diversify their reserve portfolios due to geopolitical risks, domestic inflation and a weaker dollar. "There are very good reasons for central banks to continue buying... but whether they will continue to do so at such a large scale and for such a long period of time remains to be seen." The World Gold Council pointed out in the "Global Gold Demand Trends Report" recently released that changes in the inflow and outflow of funds in global gold ETFs (exchange-traded funds) reflect investors' attitudes towards gold. In 2023, the inflow of gold ETFs in the Chinese market was approximately 5 billion yuan, with the total size increasing to 29 billion yuan, a record high.

Peter Schiff, CEO and chief global strategist at Euro Pacific Asset Management, seriously pointed out that we are facing major events, but most investors as well as governments and central banks seem unprepared. He stressed that the Fed's interest rate cut policy could exacerbate inflation problems. It is extremely rare for gold prices to rise above $30, especially without relevant news. Schiff reiterated that important events are happening now, but investors and governments and central banks are clearly unprepared. He observed that commodity prices were surging even as the Fed insisted that inflation was moving toward its 2% target and that rate cuts were imminent. This situation is undoubtedly thought-provoking, and he hopes that Wall Street or the financial media will be able to see through this situation as soon as possible. Schiff pointed out that the rise in gold prices is not just due to expectations of a rate cut by the Federal Reserve. In fact, the rise in gold prices reflects the wrongness of the decision to cut interest rates. If inflation falls with interest rates, then real interest rates will remain the same. However, because inflation is rising, real interest rates are actually falling, which is the fundamental reason for the rise in gold prices.

Citigroup analysts previously said they were "bullish on gold in the medium term" in a report and predicted that there is a 25% chance that gold prices will reach a record high of $2,300 per ounce in the second half of this year. However, their gold price forecast remains at $2,150 an ounce, and they reiterate that gold could even reach $3,000 an ounce in the next 12 to 16 months. Citigroup sees gold as a "recession hedge" for developed markets and increasingly sees upside from uncertainty surrounding the U.S. election in November.

Recently, Bank of China, China Construction Bank, China Merchants Bank, Bank of Ningbo and other banks have issued similar announcements, raising the minimum purchase amount of gold accumulation funds, by 100 yuan to 120 yuan. Lou Feipeng, a researcher at the Postal Savings Bank of China, said in an interview with Securities Daily that many banks have recently raised the starting point for fixed investment transactions in gold accumulation business. This actually reminds investors to pay attention to potential future volatility risks to a certain extent and helps the market return to rationality.

The release of the World Bank's "Gold Investment Handbook for Asset Managers" provides a concise explanation for the trend of central banks reducing their holdings of US Treasuries and increasing the proportion of gold reserves. The manual, written by Kamol Alimukhamedov, deputy general director of the Central Bank of Uzbekistan and member of the Investment Committee, outlines the phenomenon in detail. Through a comprehensive overview of gold market structure, strategic asset qualifications, and trading, custody, logistics, and accounting practices, the Handbook highlights the importance of trends in central bank gold reserves. In the handbook, Alimukhamedov delves into gold's key role in the modern global financial system. In addition to being a hedge against inflation, gold is also considered a safe asset and an important reserve asset for central banks. The manual also highlights gold’s market structure and qualifications as a strategic asset. The manual discusses the geopolitical considerations behind central banks' willingness to exchange gold for dollars. Alimukhamedov stressed that existing research has confirmed a positive relationship between gold prices and geopolitical risks, even taking into account uncertainty in financial markets. The study further differentiates between expected or perceived geopolitical risks and actual or realized geopolitical risks, noting that the latter has a more significant impact on gold price increases. Alimukhamedov believes that more countries turning to gold could increase gold prices and push gold to become a more expensive reserve asset, thereby changing the structure of global reserve assets.

The Cinda Securities research report pointed out: Since November 2022, the price of gold has continued to rise and has now exceeded a record high. Historically, rising gold has mostly been a leading signal for a comprehensive bull market in commodities. This also happened in Q4 of 2008 and 2019, when gold was stronger than other commodities. 2009 and 2020 were both bull markets for commodities. Similarly, from 1980 to 2005, in all previous commodity cycles, the price of gold led other commodities, and the lead time was mostly between half a year and one year. Gold is the most special of all commodities, with strong financial attributes, little correlation between demand and industrial enterprises, and is more easily affected by the allocation intentions of various investors. We believe that among the core factors affecting gold, long-term inflation may be the most important. Because if you look at it from a 5-year or longer perspective, the price difference between gold and other commodities is not that big. From 1980 to 2000, U.S. interest rates continued to fall, and gold theoretically benefited the most. However, gold, like other commodities, was also volatile. From 2002 to 2011, China's economy industrialized rapidly, and in theory industrial commodities benefited the most, but gold also experienced a bull market.

Since the beginning of this year, the prices of various commodities have started a "surge" mode, and gold, copper, aluminum and other metals have performed particularly well. Goldman Sachs, the "commodity flag bearer", shouted that copper, aluminum, and gold will continue to rise this year. On March 28, Goldman Sachs analysts Nicholas Snowdon and Lavinia Forcellese pointed out in a report that by the end of the year, copper will rise to $10,000 per ton, aluminum will rise to $2,600 per ton, and gold is expected to be $2,300 per ounce. Goldman Sachs predicts that factors such as the Federal Reserve's monetary policy shift, the recovery of financial demand such as ETFs, geopolitical risks and China's demand for physical goods will push gold prices to $2,300 per ounce by the end of 2024.

As of March 30, the release of the 2023 annual report of public funds has basically come to an end, and the data on the top ten holders of public products has also been disclosed. Many well-known private funds have appeared among the top ten holders of multiple types of products. As the world's number one hedge fund, Bridgewater still favors gold ETFs, with little overall adjustment compared to the middle of last year. As of the end of 2023, Bridgewater All Weather China No. 1, No. 2, and No. 3 funds were among the top ten holders of Bosera Gold ETF and E Fund Gold ETF. Bridgewater All Weather China No. 3 fund is also the third largest holder of Huaan Gold ETF. Since the first half of 2022, Bridgewater Fund has appeared among the top ten holders of Huaan Gold ETF, E Fund Gold ETF, and Bosera Gold ETF. As of the end of 2023, the above three products under Bridgewater were among the top ten holders of E Fund Gold ETF and Bosera Gold ETF. In terms of holding shares, as of the end of last year, the total shares held by Bridgewater All-Weather China No. 1, No. 2, and No. 3 gold ETFs were 13.9752 million shares, 14.4124 million shares, and 16088.29 shares, respectively. Compared with the middle of last year, the shareholdings of No. 1 and No. 3 remained unchanged, while No. 2 withdrew from the top ten holders of An Gold ETF and its total shareholdings decreased by 14.4251 million shares.

Wang Zhifan, senior researcher at the foreign exchange commodity department of Industrial Bank Research Company, said that the U.S. non-farm employment for March will be announced soon. According to leading indicators, new non-farm employment may decline, but it is necessary to pay attention to the pressure on gold prices caused by the unexpected increase in non-farm data. In the long term, the expansion of government leverage will still drive the gold price, and Shanghai gold prices will remain stronger than London spot gold.

Xu Ying, chief analyst of macro strategy of the Macro Strategy Department of Orient Securities Derivatives Research Institute, reminded that the short-term gold price trend is volatile, and the risk of chasing higher is greater. In the medium and long term, the main allocation idea is bullish, and it is recommended to wait for the callback buying opportunity.

Wang Yanqing, chief researcher of precious metals at CITIC, said that the Federal Reserve has not confirmed the timing of interest rate cuts, which brings uncertainty to the path of future interest rate cuts. However, the market's trading in expectations of interest rate cuts is very strong, which has brought strong support to gold. At the same time, excessive early trading expectations may also accumulate some risks, and there may be a short-term correction of gold. In the long run, the US monetary policy will shift from tight to loose, which is an inevitable trend. Coupled with the increasing geopolitical risks, central banks of various countries are continuing to increase their holdings of gold. Gold will still be easy to rise and difficult to fall in the future.

Cao Liulong, chief strategy officer of Founder Securities, said that gold prices generally fall during the Fed's "interest rate hike" cycle, but gold prices continue to rise during this round of "interest rate hike" cycles, which means that the traditional gold analysis framework is invalid. The acceleration of anti-globalization has led to the expansion of the "US dollar credit rift", which is the anchor of the recent surge in gold prices. Gold is the most extremely "scarce asset" and its price has begun to move upward. Once the "petrodollar" collapses, it will be difficult to rebuild. In the future, there may be an era of "conflicts among countries" without a single reserve currency. Gold is expected to start a decade of bullish growth.