Guotou Securities: Gold price hits a new high, focusing on long-term driving factors, paying attention to sectors with high growth potential and undervalued targets.

Zhitong App learned that Guotou Securities has released a research report stating that the breakthrough in gold prices is expected to open up the sector's valuation space, focusing on high-growth and undervalued targets. The reasons for this recent upward breakthrough in gold prices are twofold: on one hand, the market anticipates a weakening in March economic data, and on the other hand, the physical demand represented by central bank gold purchases and long-term geopolitical changes. More importantly, amidst market concerns about the creditworthiness of the US dollar, the preference for holding tangible assets such as gold has increased. Changes in long-term fundamental factors are the key drivers of the upward trend in gold prices. Following this breakthrough in gold prices, it is expected to dispel the market's inherent judgment of gold price fluctuations, potentially opening up the valuation space for gold-related targets, particularly those with high production growth and relatively low valuations.

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Guotou Securities' viewpoint is as follows:

London gold rising to $2,100 per ounce has significant breakthrough significance recently, with Shanghai gold prices breaking through 500 yuan per gram, and London gold effectively breaking through the $2,100 per ounce mark.

For gold prices that have been fluctuating in the range of $1,800-$2,070 per ounce, this breakthrough is of significant importance. While there are indeed short-term drivers for the rise in gold prices, it is difficult to explain this round of breakthrough based mainly on 1) the performance of US stocks indicating a high market risk appetite: the S&P, Dow, and Nasdaq are all near historical highs without significant pullbacks. 2) Expectations for interest rate cuts are still in the adjustment process: as of March 6, the market's expected timing for the first rate cut is still in June, without a significant advance compared to the past.

The favorable financial attributes of gold are still in a waiting-to-be-realized stage. Overseas expectations for interest rate cuts have not significantly strengthened, and the upward breakthrough in gold prices actually implies that the favorable financial attributes of gold are still in a waiting-to-be-realized stage.

1. Intensive economic data released at the beginning of the month: In the first week of March, important data such as the US ISM non-manufacturing PMI, job vacancies, and non-farm employment reports were intensively released. The data shows signs of weakening economic resilience, leading to a weaker US dollar index. 2) The March Fed meeting will discuss the slowdown in balance sheet reduction speed. 3) The rebound in US January CPI does not change the overall downward trend: US January CPI +0.3% MoM, core CPI +0.4% MoM were both higher than expected, and after the release of January CPI data, gold prices were under pressure. The higher-than-expected US January CPI, with a significant increase in the sub-item of rent, diverging from the trend of cooling market rents, suggests that the MoM increase in January CPI may only be a short-term rebound, easing the pressure on gold prices. 4) We are still in the phase of trading Fed interest rate cut expectations, historically during this phase gold prices tend to rise. 5) New York community bank stocks have plummeted, reflecting that small and medium-sized banks still face certain risks. Focus on Long-term Factors Driving, Gold Price Upside Potential Expected to Open

Short-term drivers often determine the rhythm of the market, but the long-term changes in physical demand and macro trends are important factors determining the upward breakthrough momentum of gold prices. Under the long-term changes in physical demand and macro trends, the upside potential of gold is expected to open up. 1) Central bank gold purchases remain strong, with continued increases. In 2023, global central bank gold purchases reached 1037 tons, only 45 tons less than the historical high set in 2022. As of January 2024, China's gold reserve market value accounts for 4.3% of foreign exchange reserves, indicating room for further increases. 2) Private gold demand is rising, with both investment and physical demand strengthening. In January, China's gold ETF scale hit a historical high, and the gold exchange's shipment volume in January also reached a historical peak, indicating an increase in domestic investment and physical demand. 3) The level of macroeconomic competition is rising, and risk aversion is expected to increase in election years. The narrowing economic gap between China and the United States is an important factor affecting the global competitive landscape, and the level of macroeconomic competition faces long-term upward risks. In 2024, a large number of countries and regions will hold elections, and risk aversion is expected to remain high throughout the year.

Amid Currency Credit Concerns, Preference for Holding Physical Assets Such as Gold Rises

The price of gold is an inverse indicator of currency credit. With concerns about the currency credit system, the market's preference for holding physical assets such as gold is increasing. Since August 2019, when the U.S. economic growth slowed and rate cuts began, the impact of the COVID-19 pandemic in March 2020 led the Federal Reserve to cut rates to zero again, initiate unlimited QE, and implement large-scale fiscal stimulus plans. The use of unconventional monetary policies and the significant increase in the total outstanding U.S. public debt will further exacerbate concerns about the credit of the U.S. dollar and its value within the existing currency credit system.

Bitcoin and gold share some similarities; however, gold's hedging and monetary properties still offer unique advantages in terms of asset allocation. Both Bitcoin and precious metals have certain monetary properties and scarcity, often seen as sovereign currencies independent of the U.S. dollar, euro, and others, serving as a hedge against credit risks. The current size of the Bitcoin market still lags behind that of the gold market, so the substantial impact of fund diversion on the gold market remains limited for now.

Risk Warning: Unexpected actions by the Federal Reserve in monetary policy, changes in the pace of central bank gold purchases, project progress falling short of expectations, and significant fluctuations in metal prices.