China Galaxy Securities: Policy efforts drive expectations for the non-ferrous industry to rebound; the mid-term logic for rising gold prices has not changed
China Galaxy Securities released a research report indicating that in 2025, there will be strengthened counter-cyclical policy adjustments, which will benefit the recovery of the non-ferrous metals industry. The mid-term logic of rising gold prices remains unchanged. The Federal Reserve is expected to cut interest rates by 25 basis points in December 2024. Although this may suppress non-ferrous metal prices, Trump's tax reduction policy could trigger credit devaluation, stimulating an increase in gold prices. The domestic market is entering a downstream off-season, leading to a decline in industry prosperity, but policy adjustments will help the industry's recovery
According to the Zhitong Finance APP, China Galaxy Securities released a research report stating that the Federal Reserve will announce a 25 basis point interest rate cut at the December 2024 FOMC meeting. The hawkish rate cut by the Federal Reserve, along with rising U.S. Treasury yields and the U.S. dollar index, will suppress the prices of non-ferrous metal commodities. However, combined with Trump's tax reduction policy plan, the scale of U.S. government debt and deficits may accelerate expansion in the future, leading to credit devaluation hedging trades that stimulate gold prices to rise. Currently, the domestic market has entered a low season for downstream operations, and industry prosperity has declined. However, it is clear that domestic policies will strengthen counter-cyclical adjustments in 2025, which is favorable for the recovery of the non-ferrous metal industry, and the mid-term logic for rising gold prices remains unchanged.
Key Points from China Galaxy Securities:
Hawkish rate cut by the Federal Reserve, rising U.S. Treasury yields and U.S. dollar index suppress non-ferrous metal commodity prices
The Federal Reserve announced a 25 basis point rate cut at the December 2024 FOMC meeting, bringing the interest rate level to 4.50%-4.25%, with a total rate cut of 100 basis points in 2024. Although the Federal Reserve cut rates as expected in December, and the overall rate cut in 2024 met market expectations, the dot plot released in December indicated two rate cuts in 2025 and two in 2026, which is a reduction in the number of rate cuts compared to the September dot plot.
At the post-meeting press conference, Federal Reserve Chairman Jerome Powell stated that the Federal Reserve is at or near a point of slowing down rate cuts. The hawkish signals regarding the subsequent pace of rate cuts led to a significant rebound in U.S. Treasury yields and the U.S. dollar index, suppressing the prices of non-ferrous metal commodities.
Domestic policies clearly strengthen counter-cyclical adjustments in 2025, favorable for the recovery of the non-ferrous metal industry
The December 2024 meeting of the Central Political Bureau and the Central Economic Work Conference emphasized the need to strengthen extraordinary counter-cyclical adjustments in 2025, clearly stating the implementation of a more proactive fiscal policy and moderately loose monetary policy. The fiscal policy has shifted from "proactive" to "more proactive," which will increase the fiscal deficit ratio, issue ultra-long special treasury bonds, and local government special bonds to resolve local debt, acquire land reserves, and existing housing; the tone of monetary policy has been adjusted from "prudent" to "moderately loose" for the first time since 2011.
At the same time, the meeting placed "comprehensively expanding domestic demand" as the top priority among nine key tasks, proposing greater support for "dual-heavy" projects. High-level domestic meetings have once again clarified the release of strengthened proactive macro policies in 2025, enhancing expectations for a better macro economy, which will improve the demand for upstream copper and aluminum in the non-ferrous metal industry from downstream sectors such as real estate, construction, machinery, automobiles, and home appliances. Ample liquidity will also support the rise in non-ferrous metal commodity prices, which will benefit the prosperity of the domestic non-ferrous metal industry and the upward trend of the A-share non-ferrous metal industry index.
Investment Advice: The mid-term logic for rising gold prices remains unchanged
The overall valuation of the A-share gold sector has currently reached a near five-year bottom area. The performance forecast for A-share gold stocks in Q4 2024 is expected to grow compared to Q3, and the recent increase in market volatility in the A-share market enhances the allocation value of the gold sector, which is expected to drive a rebound in the A-share gold sector. It is recommended to pay attention to Shandong Gold (600547.SH), Zhongjin Gold (600489.SH), Yintai Gold (000975.SZ), and Chifeng Gold (600988.SH) Risk Warning: 1) The risk of a significant decline in non-ferrous metal prices; 2) The risk of domestic economic recovery being less than expected; 3) The risk of the Federal Reserve's interest rate cuts being less than expected; 4) The risk of global geopolitical confrontations exceeding expectations; 5) The risk of downstream demand for non-ferrous metals being less than expected; 6) The risk of domestic policy implementation being less than expected