Zhongjin: Optimistic about the upward trend of gold prices in 2025 and the widening profit margin per ton of gold production in 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 the possibility of breaking through $3000 per ounce in 2025. The price of gold in RMB may experience a larger increase compared to the price in USD. From 1Q24 to 3Q24, as the cost increases slow down and the price of gold continues to rise, the pretax profit per ounce begins to stabilize and rise, going from $692 to $1019. Looking ahead to 4Q24 and 2025, CICC predicts that the pretax profit per ounce for global gold companies may further increase. The main points of CICC are as follows: Looking ahead to 2025, we believe that the price of gold may still be in a bull market channel, with the possibility of breaking through $3000 per ounce in 2025. There are three main drivers: firstly, with the commencement of the new term of the US President Donald Trump, whose policy agenda has a strong inflationary nature, and even if the Federal Reserve becomes more hawkish, the probability of excessively raising interest rates to suppress inflation is low. The current historically high real interest rates in the US are expected to decrease. In this context, the significant negative correlation between real interest rates in the US and the purchase of gold by European and American gold ETFs is expected to be an important force supporting the rise in gold prices. Secondly, the trend towards global multipolarity and de-dollarization is ongoing, and the trend of central banks globally increasing their gold reserves may continue, with a cumulative net purchase of gold by global central banks of 693.5 tons in the first three quarters of 2024, maintaining a relatively high level. It is worth noting that the People's Bank of China's gold purchases have a strong countercyclical nature in history, and in November 2024, the People's Bank of China restarted the process of purchasing gold, which may provide strong support for the rise in gold prices in 2025 under the pressure of the US economy's re-inflation trend and the expected management transition of the Federal Reserve. Thirdly, the price of gold in RMB is expected to hedge against fluctuations in the RMB exchange rate. The effectiveness of cost control is gradually becoming apparent, and the gross profit of gold mining enterprises is expected to increase. According to data from the World Gold Council, the average pretax profit per ounce of global gold enterprises has sharply declined from 2020 to 2023, but has gradually rebounded since 1Q24. From 3Q20 to 4Q23, against the backdrop of high global inflation, the increase in all-in sustaining costs for global gold enterprises has surpassed the increase in gold prices, leading to a 31% decrease in pretax profit per ounce. From 1Q24 to 3Q24, with the slowdown in cost increases and further increase in gold prices, the pretax profit per ounce began to stabilize and rise, going from $692 to $1019. Looking ahead to 4Q24 and 2025, we expect that the pretax profit per ounce for global gold companies may further increase. At the same time, there are signs of a reversal in the rise of the gross profit of domestic gold mining enterprises in 2024. Taking Zijin Mining Group as an example, the gross profit from mining reversed and began to rise in 1Q24. In 1Q24, the gross profit from mining was 235 yuan/gram, which increased by 55 yuan/gram compared to 4Q23, and reached 303 yuan/gram in 3Q24, continuing to rise. The gold sector has already undergone a significant adjustment, and we believe that its valuation attractiveness is increasing. Taking the Huaxia CSI HKSH 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 fallen into the range of 11-30x, with a central value of about 20x, which is in the lower percentile range of 9%-20% since listing. Additionally, with domestic gold listed companies having strong growth potential in domestic storage and production as well as overseas mining acquisitions, the valuation attractiveness of the gold sector is increasing.