Tianfeng: The rise in gold prices is forming a joint force, significantly increasing the probability of growth in gold companies' performance.

Tianfeng released a research report stating that the trade war has weakened the US dollar credit, leading to a rise in gold prices and a significant increase in the probability of gold companies' performance growth. (1) Trump's significant increase in tariffs globally has heightened concerns about the risk of economic recession in the US and default risk of US debt. With the rapid decline of the US dollar index, the market has formed a consensus on the weakening of US dollar credit, and the resolution of the gold price divergence has opened up valuation space for gold companies. (2) With the significant increase in gold prices, the performance growth of gold stocks is likely to reach a higher level and last longer, boosting market confidence in investing in gold companies. Recommended to pay attention to: Chifeng Jilong Gold Mining (600988.SH), Shandong Gold Mining (600547.SH), Shanjin International Gold (000975.SZ), etc. Tianfeng's main points are as follows: Q1 Why do gold products diverge from equities? Different asset attributes, complex pricing factors for gold, and high variance in gold stock performance expectations. (1) Different underlying asset attributes: Gold, as a physical commodity, is mainly influenced by factors such as inflation expectations, safe-haven demand, and the global monetary and credit environment. Gold stocks, as equity assets, are priced based on company profitability, operating costs, and market expectations for the sustainability of gold prices. (2) Complexity of purchasing power behind the current gold price increase: The purchasing power behind the current rise in gold prices is more diverse and complex compared to historical cycles, with each short, medium, and long term narrative focusing on specific indicators and logic. With the complex and changing macroeconomic environment, the difficulty of price judgment has increased. (3) High variance in expected realization of performance: The divergence in gold prices hitting new highs also affects market expectations of the performance growth and duration of gold stocks, leading to a high fluctuation in market expectations for gold stock performance. Q2 What drives the recovery of gold stocks? This round of gold equity recovery is driven by: 1. The weakening of US dollar credit has unified market confidence in the upward trend of gold prices. 2. With the opening up of gold price space, the sensitivity of performance relative to gold prices has increased, leading to a higher probability of gold stock performance growth and duration for investors. Review: Trend divergence and convergence of domestic and foreign gold stocks Source: Wind, Tianfeng Research Institute First recovery: The rise in gold prices drives a convergence, opening up space for gold company performance growth First recovery from January 2024 to May 2024: Market expects interest rate cuts in 2024 and has strong confidence in the significant growth of gold mining companies in 2024. Event background: 1) Geopolitical risks including the overflow effect of the Russia-Ukraine conflict, escalating Middle East issues, etc., the Geopolitical Uncertainty Index (GPR) averages 147 points, a 34% increase year-on-year, reaching a phase high point since the outbreak of the Russia-Ukraine war in 2022, highlighting the hedging value of gold. 2) Overall better-than-expected US economic data, although the timing of rate cuts has been delayed, market still expects rate cuts later in the year; 3) Amid the backdrop of the weakening US dollar credit, the process of de-dollarization accelerates, and the crisis of trust in US debt triggers continued purchases of gold by central banks worldwide, driving the upward momentum of gold prices. In this broad narrative, the explanatory power of real US interest rates on gold prices weakens. 4) Marginal monetary easing in domestic policies (such as accelerated mining rights approval) is expected to unleash gold production capacity. Equity recovery momentum: A resonance of multiple factors propels gold prices towards an upward breakthrough - although rate cuts have not been implemented, the market maintains expectations; escalating geopolitical conflicts spark hedging demands; central banks accelerate gold purchases, and the weakening US dollar credit narrative gains recognition; as gold prices rise, the market anticipates a rise in market expectations for both volume and price of gold companies. Source: Wind, Tianfeng Research Institute First Divergence: A brief divergence in the gold narrative, leading to increased variance in gold company profits. Divergence from August 2024 to December 2024: Expectations of rate cuts in late August 2024, market concerns about future momentum of gold prices and stability of gold company performance. Event background: 1) Powell officially signaled a change in monetary policy timing on August 23, with expectations of rate cuts landing; on September 19, the Fed cut rates by 50bp to 4.75%-5.00%, surpassing market expectations; on November 7, the Fed cut rates again by 25bp to 4.50-4.75%, meeting market expectations. 2) Starting from Q3 2024, there was an increase in market volatility in gold company performance forecasts, reflecting rising uncertainty in gold mining companies' performance. Reasons for trend divergence: Market has not formed a unified judgment on the driving force behind the increase in gold prices. The US officially cut rates in September, causing concerns in the equity market that the US economy still had enough momentum at the time, and further rate cuts could lead to insufficient momentum for subsequent rate cuts, slowing the rise in gold prices. The divergence in gold price judgments also led to an increase in variance in market expectations for gold mining company performance, resulting in a divergence between gold equities and commodities. Source: Wind, Tianfeng Research Institute Second recovery: Weakening of US dollar credit becomes a new supportive force, reasserting the growth space for gold company performance Second recovery from February 2025 to April 2025: Market expects a recovery in the pace of rate cuts, with the US dollar index and US bond yields declining, and gold pricing reflecting US stagflation and trade friction disorder. Event background: 1) In January and February, under the strict tariff policy, the rise in raw material costs may lead to inflation; 2) Europe introduced economic stimulus policies, the Bank of Japan raised interest rates, other currencies strengthened against the US dollar, pushing up gold prices; 3) US consumer confidence index declined, the University of Michigan's inflation expectations index rose, the probability of US stagflation rose, market expects a higher number of rate cuts this year; 4) Trump's tariff policy fluctuations further revealed the intrinsic value of gold amidst high uncertainty. Upward recovery momentum: Gold prices once again form a convergence, with the weakening of US dollar credit as a pivot. The return of rate cut expectations, the market's shift from expecting a second inflationary trend in the US to concerns about economic recession due to strict tariff policies, coupled with further damage to US dollar credit under the tariff war, have led to a unified judgment on the upward momentum of gold prices in the market. Source: Wind, Tianfeng Research Institute Divergence and convergence, the core is trust.Heart, duration, spaceSummary of the two phases of repair and one phase of divergence between gold and equities over the past 24 years, it seems that equities only rise when interest rate cut expectations are strengthened, but this only represents the superficial. Essentially, when interest rate cut expectations are strong, the multi-line narrative of gold is unified - only when the US economic outlook weakens, interest rate cut expectations strengthen, stagflation risks increase, and fiscal deficit expectations lead to the weakening of the US dollar credit. However, when the US economic data momentum is strong, although the expectations of secondary inflation increase and the monetary attributes of gold strengthen, phenomena such as rising US bond yields and the US dollar index lead to the weakening of the financial attributes of gold, causing a divergence in the market at the same time slice, hence generating disagreements on the gold price space. The divergence in gold prices implies a divergence in the market's high and duration judgment of the performance growth of gold stocks, paying more attention to the present realization degree. Therefore, the variance of market expectations for the performance of gold stocks is beginning to widen, reflecting a decrease in market confidence in the realization of gold stock performance. Q3 Outlook, how about the opportunities for gold stocks? Currently, the valuation of gold stocks is at the 20th percentile of the five-year period, with both room and momentum for repair in the sector, and the window period for the convergence of the "scissor difference" in gold stocks. The trade war has resulted in the weakening of US dollar credit becoming evident, as gold prices rise, forming a convergence of forces, significantly increasing the probability of gold enterprise performance growth. (1) Trump's substantial imposition of tariffs globally has increased market concerns about the risk of US economic recession and US debt repayment risk. With the rapid decline of the US dollar index, a narrative of the weakening of US dollar credit has formed in the market, the end of the gold price divergence has opened up valuation space for gold enterprises. (2) With gold prices rising significantly, the probability of gold stock performance growth reaching a higher level and duration becomes a high probability event, strengthening market confidence in investing in gold enterprises. Numerator end: Gold prices are expected to continue to rise, boosting enterprise EPS. In addition to the increasing stagflation expectations in the US, the US's substantial imposition of tariffs globally has increased market concerns about the collapse of the global monetary system, highlighting the importance of gold as a safe-haven asset. Gold prices have abundant upward momentum, and the release of profits in gold stocks is expected to be smoother. Source: Wind, Tianfeng Research Institute Denominator end: The precious metals sector is at historically low PE levels, with valuation upside potential in sight. As of April 1, 2025, the PE ratio of the precious metals index is 19.51, at the 9.17% percentile of the ten-year period, and at the 18.41% percentile of the five-year period. The further strengthening of the upward momentum of gold is essentially enhancing the sustainability and stability of the performance growth of gold mining companies, with the potential to systematically repair industry PE levels and potential valuation increases. Source: Wind, Tianfeng Research Institute Risk warning: Risks of US-China trade friction, risks of significant decline in gold prices, and risks of companies failing to expand production as expected.