Hong Kong Stock Concept Tracking | US June CPI Data Boosts Rate Cut Expectations, Gold and Silver Benefit from Soaring Expectations for Fed Monetary Policy (with Concept Stocks)

According to the Wise Finance APP, on July 11th, the data released by the U.S. Bureau of Labor Statistics showed that the U.S. CPI in June rose by 3% year-on-year, with an estimated increase of 3.1%, and a month-on-month decrease of 0.1%, with an estimated increase of 0.1%. Analysis suggests that inflation in the U.S. cooled across the board in June, which will further boost the confidence of Federal Reserve officials in the possibility of a quick rate cut. J.P. Morgan has changed its expectation of a Fed rate cut from November to September. Meanwhile, gold and silver prices have risen collectively, with spot gold surpassing $2400 per ounce and spot silver rising over 3% intraday. Industry insiders indicate that the recent rise in international gold prices is mainly driven by expectations of Fed monetary policy.

At the close, among U.S. gold and silver mining stocks, Hecla Mining rose by over 7.4%, Pan American Silver by about 5.9%, Coeur Mining by about 5.8%, and Barrick Gold by less than 2.0%, performing relatively lower. The gold mining stock ETF GDX rose by over 2.8%, and the silver ETF SLV rose by over 1.8%.

After nearly two months of adjustment, gold and silver are regaining momentum. On July 8th, gold in London rose to its highest level in over a month, while silver in London surged over 7% from its interim low; the futures market and A-share market's precious metals sector also performed well. Industry experts suggest that the recovery of the precious metals sector this time is mainly due to the cooling of the U.S. economy and job market, which has raised expectations of a Fed rate cut this year. Looking ahead, adjustments in Fed monetary policy and risk aversion sentiment remain key factors determining the trend of precious metals.

Gold is seen as a safe interest-free asset, with real interest rates or exchange rates being the opportunity cost of gold. The significant negative correlation between real interest rates and gold prices reflects the financial attributes that drive gold. As the Fed begins to slow its balance sheet reduction and enters a rate-cutting cycle, with short-term rates locked at high levels and a possible delay in rate cuts, the short-term gold pricing balance gradually tilts towards inflation, with expectations of declining short-term real interest rates driving gold prices up.

Furthermore, central banks around the world have bought over 1,000 tons of gold between 2022 and 2023, equivalent to 20% of global demand, and are expected to continue buying at the same pace in the first quarter of 2024, which could have far-reaching implications. In addition, Western investors have been selling gold, but this has not stopped gold prices from reaching new highs. Schroders believes that they are likely to transition from sellers to buyers in the next few quarters, becoming another key participant in the gold market.

Schroders states that the simultaneous tension in geopolitical situations and financial fragility continues to drive sustained growth in gold demand, potentially triggering one of the strongest bull markets since President Richard Nixon closed the "gold window" in November 1971, ending the gold standard for the U.S. dollar. The total market value of the entire gold stock market is currently around $300 billion, but it has been long overlooked by investors. The institution believes this situation will change. If it becomes necessary to include gold stocks in long-term precious metal investment allocations, the institution believes now is the right time. It is not an exaggeration to say that gold stocks could potentially rise by 50%, as their valuation remains cheap On the silver front, the Morgan Stanley team led by Amy Gower pointed out in a report on July 9 that the silver market has experienced a supply shortage for three consecutive years, which not only offset the previous surplus but also brought inventory levels back to normal. It is expected that the silver shortage will further expand in 2024 as demand will exceed supply, mainly driven by moderate recovery in solar energy and jewelry demand, as well as reduced outflows of ETF funds. Currently, the silver price has risen to its fourth-quarter target price of $31 per ounce. The institution believes that in a bull market scenario, the silver price is expected to rise by another 25.8%, hitting $39.

Supported by both fundamentals and macro factors, silver has outperformed copper and gold, rising by about 30%. The reasons behind this, as stated by Morgan Stanley, are as follows:

Firstly, supply difficulties. In 2023, due to the impact of new mining laws, the production in Mexico, the world's largest silver producer, decreased by 9% year-on-year. Additionally, the closure of zinc mines also affected the production of silver as a by-product.

Secondly, the growth in solar energy demand, which has doubled since 2020, especially with the increase in installations and the rise in silver content required per unit of solar energy, providing strong support to the silver market, currently accounting for 20% of total silver demand.

Thirdly, the market's enthusiasm for precious metals such as gold has also driven the rise in silver prices. Although silver initially lagged behind gold in price increases driven by central banks, it eventually caught up and outperformed gold.

Silver production has declined significantly in the past decade, with a CAGR of -0.5%, where mined silver has a CAGR of -0.7%. While silver recycling has been increasing continuously, it is difficult to compensate for the decline in mined production. Mined silver mostly comes from copper, lead, and zinc mines, and factors such as the decline in high-grade silver ore and disturbances in overseas supply limit output. It is expected that total silver supply in 2024 will continue to decrease by 0.7% compared to 2023.

Guojin Securities points out that silver has both financial and commodity attributes, with current commodities and macro resonance trending upwards. On the commodity side, four consecutive years of supply shortages have driven silver prices with a strong upward foundation; on the financial side, the Fed's rate cuts constitute a basis for silver price increases, the weakening of USD credit reconstructs the gold price pricing model, and the long-term outlook for gold prices is optimistic, with silver as a shadow of gold having greater upward elasticity.

Huaxi Securities believes that the further delay in the Fed's rate cut point maintains high interest rates, further increasing macroeconomic downside risks. The safe-haven properties of gold are highlighted during economic downturns, and after a gold price correction, it is expected that major central banks worldwide will continue to increase their gold holdings, providing support for gold prices. Huaxi Securities believes that although the expectation of the Fed's loose policy is delayed, gold will continue to benefit from the Fed's rate cuts and safe-haven properties, making precious metal allocation opportunities worth paying attention to.

Related concept stocks:

Zijin Mining (02899): Goldman Sachs stated in a research report at the end of March that it maintains a "buy" rating on Zijin Mining and raises profit forecasts for this and next year by 3% to 9%, reflecting the group's higher copper and gold production. The target price has been raised from HKD 17.5 to HKD 19 Shandong Gold (01787): Recently, Shandong Gold announced its full-year performance for 2023, with revenue of approximately RMB 59.275 billion, a year-on-year increase of about 17.83%; net profit attributable to shareholders was RMB 2.267 billion, a year-on-year increase of about 89.99%. In 2023, the company's gold production was 41.78 tons, an increase of 3.10 tons compared to the previous year, with a growth rate of 8.03%.

China Gold International (02099): China Gold International previously announced that its Changshan Hao Gold Mine (Changshan Hao Mine) resumed full production operations on January 3, 2024; its Jiama Copper-Gold Polymetallic Mine started gradually resuming production on December 15, 2023.

Zhaojin Mining (01818): Morgan Stanley's research report on March 6 stated that with gold prices hitting a new high above $2,100 per ounce, Zhaojin will benefit from this. The bank estimates that for every 1% increase in gold price, Zhaojin's net profit for 2024 will increase by 2.9%