Sinolink: Gold "false rebound" instead of reversal End of year target $4300-4500 per ounce.

Sinolink releases research report stating that the rebound in gold and silver is a result of the breakdown of momentum in technology and rotation of funds to other sectors, rather than confirmation of a new trend. Gold has not yet broken through its downward channel, and the improvement in central bank gold purchases, ETF inflows, and speculative positions is still limited. In the second half of the year, gold is expected to undergo oscillations and recovery, with a target range of $4300-4500 per ounce by the end of the year. Sinolink's views are as follows: 1. Possibly a "false rebound" Since July, there has been intense rotation of global equity assets. AI hardware stocks in South Korea have experienced significant retracements due to deleveraging sentiment and profit-taking demands in various markets, leading funds to rotate to other sectors. In the US stock market, funds sell FAANG stocks and buy the top 7 companies (M7); in the Asia-Pacific market, funds sell KOSPI, Nikkei, and the ChiNext 50, and buy non-AI assets and Hikvision. Interestingly, gold and base metals have also rebounded in the past two days. Since July 20, spot gold has rebounded by 2.6%, while more elastic spot silver has rebounded by 4.5%. Gold stocks have rebounded even more vigorously, with leading gold mining stocks Zijin Mining Group and Shandong Gold Mining rising by 16.6% and 15.4% respectively during the same period. Since March this year, the rise in oil prices has been one of the major drivers of the significant decline in gold and silver prices. However, given the recent fluctuations in US-Iran relations and the rise in oil prices and US bond yields, why have gold and silver rebounded? Some believe this is a turning point for gold, but it is too early to talk about a reversal. Previously, sectors such as healthcare, commercial aerospace, high-dividend stocks, and Shenzhen Agricultural Power Group had experienced rotational phases. This rotation is a result of the breakdown of momentum in technology and funds rotating externally, so a rebound in precious metals is not unexpected. From a technical perspective, gold has not yet clearly broken out of its downward channel since late April. From a fund perspective, momentum funds in gold and liquidity-sensitive funds have rebounded, with the world's largest gold ETF - SPDR Gold ETF - increasing from 999 tons on July 17 to 1008 tons on July 22. Comex gold futures speculative positions have also rebounded recently, reaching 194,000 contracts in the week of July 4. As mentioned earlier, a clear turning point for gold in the second half of the year requires signals of a revival in the AI bubble theory, expectations of interest rate cuts, and concerns about US dollar credit, but none of these are clear at present. Regarding whether the AI bubble theory is reigniting, after rapid adjustments in hardware stocks, the market has indeed shifted from discussing insufficient demand to discussing investment returns and valuation constraints. However, after Google slightly raised its capital spending plan for CY2026 to $195-205 billion, Micron rebounded in after-hours trading, indicating that optimism for the fundamentals of AI remains intact. Therefore, it is necessary to closely monitor the incremental information from earnings reports of other US cloud companies next week (Microsoft, Meta after-market on July 29, Amazon after-market on July 30). The overall capital spending plan of cloud companies will determine whether the technology hardware sector can restart. As for the resurgence of interest rate cut expectations, the impact of rising oil prices on interest rate expectations seems to have weakened. Since June 30, Brent oil prices have rebounded by 32%, 10-year US bond real interest rates have increased by 15 basis points, and 10-year US bond breakeven inflation expectations have increased by 6 basis points, but market expectations for the number of rate hikes by the Federal Reserve in December have only risen from 1.1 times to 1.3 times. Expectations of interest rate hikes have somewhat dulled the rebound in oil prices, focusing more on reflecting medium-to-long-term inflation expectations. Expectations for interest rate hikes may have passed their most hawkish phase, which has to some extent catalyzed the rebound in gold and silver. 2. How to view gold in the second half of the year? In the second half of the year, gold has value for allocation at the bottom and requires catalysts for an increase, with a year-end target of $4300-4500 per ounce. The more likely scenario is oscillation and recovery, and a new unilateral uptrend still requires catalysts. As technology stocks transition from unilateral uptrends to high-level differentiation, fund allocation is expected to become more balanced between technology and gold. If inflationary pressures ease in the future and expectations for Fed rate hikes decline, the suppression of gold by the US dollar and real interest rates will also be relieved. In the base scenario, the US dollar and real interest rates may remain relatively high, with the allocation value of gold exceeding trend trading value, making it more suitable for gradual positioning during pullbacks. For gold to have greater upside potential, strong catalysts are needed. Firstly, there is a moderate probability of the resurgence of the AI bubble theory. If the return on investment in technology capital spending is questioned, combined with a slowdown in the marginal impact of AI investment on economic growth, rising expectations of interest rate cuts, and rebalancing of funds, the odds of gold strengthening will increase. Secondly, there is a small probability, high odds scenario of rising US dollar credit concerns. If risks related to US fiscal, debt, or policy uncertainties before midterm elections lead to a market reevaluation of the safety of US dollar assets, gold may experience stronger demand for hedging and reserves. In conclusion, in the second half of the year, it is suitable to allocate gold and technology assets in a balanced manner, without having overly high expectations for short-term gains. Risk warnings - Overseas cloud company capital spending is lower than expected - Oil prices and inflation expectations rise unexpectedly above forecasts - Global leveraged fund deleveraging exceeds expectations.