Northeast Securities: Declining trade expected to drive gold prices higher, limited decline in copper prices

According to the Zhitong Finance APP, Northeast Securities released a research report stating that as trading transitions from rate cut trading to recession trading, the price of gold is expected to continue to strengthen. In the long term, with the backdrop of global currency devaluation, geopolitical conflicts, and economic uncertainty, the value of gold allocation is highlighted. Additionally, after thorough chip exchanges among the bulls trading rate cuts, bears trading recession, and industrial funds, the bullish sentiment has significantly dissipated. Data cooling beyond expectations has given the bears a reason to cash out, potentially providing good short-term support for copper prices. However, the long-term bullish logic remains unchanged, emphasizing the value of equity allocation under uncertainty.

Gold: Recession trading is expected to drive gold prices higher. This Friday, the closing price of London Gold was $2442.08 per ounce, with a weekly increase of +2.3%. 1) The July FOMC meeting has begun to manage rate cut expectations: In the early hours of August 1st, the Fed kept the benchmark interest rate unchanged, in line with market expectations. However, there were many adjustments in the FOMC statement, such as the wording change from "maintaining strength" to "slowing down" regarding employment, indicating a more balanced risk between inflation and employment. In addition, Powell acknowledged the possibility of a rate cut in September during the press conference but maintained an overall neutral stance dependent on data. Overall, the Fed has begun to manage rate cut expectations in this meeting, but with some reservations. It is expected that after further observation of August economic data, the Fed will release a clearer rate cut signal at the August Jackson Hole meeting. 2) U.S. employment data cools beyond expectations: On August 2nd, the U.S. announced a 4.3% unemployment rate for July, with an expectation of 4.1% and a previous value of 4.1%. Non-farm payrolls increased by 114,000 people, with an expectation of 175,000, and the previous value revised from 206,000 to 179,000. The cooling of employment data beyond expectations (possibly influenced to some extent by the disturbance of Hurricane Beryl in July) triggered the Sam rule, further tilting market trading towards recession trading. 3) Why is the gold price behaving abnormally? After the weak employment data, the gold price initially surged but then experienced a significant drop. There are several possibilities: ① Expectations of RMB appreciation: After the data was released, due to expectations of a weakening U.S. economy, the offshore RMB exchange rate appreciated significantly from 7.2 to around 7.144, creating a convergence demand for the exchange rate difference implied in the gold price between onshore and offshore markets. Some Shanghai gold bulls may have exited due to this, or there may have been long offshore gold-short onshore gold positions, and the selling pressure in the onshore market may have triggered some stampede. ② Chain reactions from asset allocation: Currently, in addition to unilateral trading, gold is also frequently included as a risk-hedging asset in various portfolios (e.g., long NVIDIA but hedging U.S. stock market risk with gold). Many CTA strategies also have long gold positions, and when correlated assets plummet, the overall portfolio liquidation may also bring selling pressure to gold, causing the asset that should have moved in the opposite direction to show a similar trend in the short term. Short-term disturbances do not change the long-term positive expectations. With trading transitioning from rate cuts to recession, gold prices are expected to continue to strengthen. In the long term, with the backdrop of global currency devaluation, geopolitical conflicts, and economic uncertainty, the value of gold allocation is highlighted. Related targets: Zijin Mining, Shandong Gold, Chifeng Gold, Yintai Gold, Hunan Gold, China Gold, Western Gold, Zhaojin Mining, Hengbang Shares, Pengxin Resources, etc. Copper: Concerns about recession intensify but market sentiment remains strong, long-term bullish logic unchanged. 1) Why are concerns about recession intensifying while copper prices show strength? On August 2nd, US employment data cooled down more than expected but copper prices on the international market closed higher. As of July 30th, the non-commercial net long position ratio of COMEX copper dropped from over 20% to 9.4%, approaching the level at the end of March. Meanwhile, the total open interest of contracts 2409 and 2412 has fluctuated between 2.3 to 2.6 million tons since July, with no significant decrease in open interest. This may indicate that after ample chip exchanges among longs anticipating rate cuts, shorts anticipating a recession, and industrial funds, the sentiment for longs cashing out has significantly dissipated. The unexpected cooling of data has provided shorts with a reason to cash out, potentially indicating good short-term support for copper prices. 2) Long-term bullish logic remains unchanged. Assuming no hard landing or soft landing overseas and a solid foundation in China, the long-term supply and demand structure of copper is excellent, making it difficult for copper prices to plummet. The long-term bullish logic remains unchanged, emphasizing the value of equity allocation under uncertainty. Related targets: Zijin Mining, Luoyang Molybdenum, Western Mining, Jiangxi Copper, Jin Chengxin, Tongling Nonferrous, Northern Copper, Minmetals Resources, etc.

Risk Warning: Continued higher-than-expected US inflation, global monetary tightening exceeding expectations, US dollar appreciation