CICC: Bullish on the upward trend of gold prices in 2025 and the widening gross profit margin of gold mining enterprises.

CICC released a research report stating that looking ahead to 2025, the price of gold may still be in a bull market channel, with a potential to break through $3000 per ounce in 2025. The price of gold in RMB may achieve a larger increase compared to the price of gold in USD. It is optimistic about the upward trend of gold prices in 2025 and the gross profit per ton of gold produced by gold mining enterprises. After a significant adjustment period, the attractiveness of A/H gold sector allocation has significantly increased. It is recommended to pay attention to Zijin Mining Group (601899.SH, 02899), Shanjin International Gold (000975.SZ), ZHAOJIN MINING (01818), and Hunan Gold Corporation (002155.SZ). Other companies along the industrial chain include Zhongjin Gold Corp., Ltd (600489.SH), CHINAGOLDINTL (02099), Shandong Humon Smelting (002237.SZ), Western Region Gold (601069.SH), and other targets. CICC's main viewpoints are as follows: Looking ahead to 2025, the price of gold may still be in a bull market channel with a potential to break through $3000 per ounce in 2025. The price of gold in RMB may achieve a larger increase compared to the price of gold in USD. There are three main drivers: Firstly, with the inauguration of Donald Trump as the new President of the United States, his policy agenda has a strong inflationary nature. Even if the Federal Reserve turns hawkish, the probability of significantly raising interest rates to stifle inflation is small under the policy orientation of encouraging the restructuring of the U.S. supply chain. The currently historical high real interest rate in the U.S. is expected to fall. In this context, European-American gold ETF purchases, significantly negatively correlated with real interest rates in the U.S., are expected to become an important force supporting the upward trend of gold prices. Secondly, the global trend towards multipolarity and de-dollarization has led to a continued trend of global central banks systematically increasing their gold reserves. In the first three quarters of 2024, global central banks collectively purchased 693.5 tons of gold, maintaining a high level. It is worth noting that the Chinese central bank's gold purchases have shown strong countercyclicality in history. In November 2024, the Chinese central bank resumed gold purchases, providing strong support for the upward trend of gold prices in 2025 amidst the pressures of rising U.S. inflation and the expected hawkishness of the Federal Reserve. Thirdly, the price of gold in RMB is expected to hedge against the depreciation pressure of the RMB. Cost control effectiveness is gradually becoming apparent, and the gross profit per ton of gold mined by gold enterprises is expected to widen. According to data from the World Gold Council, the average pretax profit per ounce of gold mining companies globally significantly decreased from 2020 to 2023, but has gradually rebounded since 1Q24. In the context of high global inflation from 3Q20 to 4Q23, the increase in the all-in sustaining costs (AISC) of global gold companies exceeded the increase in gold prices, resulting in a 31% decrease in pretax profits per ounce. Since 1Q24 to 3Q24, as the cost increases slowed and gold prices continued to rise, pretax profits per ounce began to stabilize and rebound, rising from $692 to $1019. Looking ahead to 4Q24 and 2025, it is expected that the pretax profits per ounce of global gold companies will further widen. Meanwhile, signs of a rebound in gross profit per ton of gold mined by domestic gold companies in 2024 have emerged. Taking Zijin Mining Group as an example, gross profit per ton of gold mined has seen a turning point since 1Q24. The gross profit per ton of gold mined was 235 yuan/gram in 1Q24, which increased by 55 yuan/gram compared to 4Q23. In 3Q24, it reached 303 yuan/gram, showing a continuous increase. The current round of gold sector has experienced a significant adjustment, and its valuation attractiveness is rising. Taking the Huaxia CSI Shanghai-Hong Kong-Shenzhen Gold Stock ETF as an example, the maximum drawdown from May 20, 2024 to January 14, 2025 was 25.48%, with an overall decline of 11.9%. In terms of valuation range, the P/E TTM of major domestic gold companies has generally digested to the range of 11-30x, with a median of about 20x, which is in the lower percentile of the valuation range of 9%-20% since listing. Additionally, with strong growth potential in domestic gold listed companies in terms of increasing reserves and production domestically and overseas mergers in China, the valuation attractiveness of the gold sector is increasing. Risk factors: Fed hawkishness exceeds expectations; RMB exchange rate fluctuates beyond expectations; gold companies perform below expectations.