CMSC: How do you view the fluctuations and future trends of gold and gold jewelry stocks?

CMSC released a research report stating that since 2022, the rise in gold prices has been mainly driven by three core factors: 1) Cyclical factors: the shift in monetary policy by the Federal Reserve from slowing rate hikes to rate cuts. 2) Market concerns about US dollar credit, prompting global central banks to actively purchase gold for diversifying reserve assets; 3) In the short term, increased geopolitical risks and uncertainty in the global trade environment have led to a significant amount of investment funds considering gold as a safe-haven asset, opening up upward price movement for gold. Looking ahead, the short-term turning point for gold depends on the easing of geopolitical risks, including US-China trade tensions and the Russia-Ukraine conflict. The medium-term turning point depends on the shift in Federal Reserve monetary policy or a turning point in US government debt expansion. CMSC's main points are as follows: Macro In the short term, gold prices are volatile and expected to temporarily enter a consolidation phase. However, in the medium to long term, three factors continue to drive the central upward movement of gold prices: 1) Global central banks continue to purchase gold to hedge against US dollar credit risk; 2) Global gold ETFs have shifted from net selling to net buying; 3) Market expectations for two more rate cuts by the Federal Reserve this year, and a higher rate of cuts next year after a change in Federal Reserve leadership. In other words, the future price of gold will be driven by both currency attributes and financial attributes. Asset Allocation Gold valuation is still at an acceptable level, and there is room for domestic institutions to increase their allocation to gold based on quantitative indicators. The recommended allocation ranges are 5% to 10% for short-term, 10% to 20% for medium-term, and 20% to 25% for all-weather strategies. Currently, public funds, bank wealth management products, and insurance institutions' allocation to gold is growing marginally, but there is still room for absolute increases. Nonferrous Metals Since mid-October, gold stocks have shown that stock prices are not keeping up with the rise in gold prices mainly due to a steep increase in gold prices since August, leading to overbought conditions on various technical indicators. Caution in the equity market has caused a premature peak and decline in gold prices. The bank believes that as gold prices stabilize at high levels and form a bottom, gold stock prices will resume being in line with gold prices. The valuation of gold stocks is still historically low, with a rolling price-to-earnings ratio of only about 30 times, and other indicators showing historical lows after excluding the influence of the broader market. Recommended stocks to watch include LINGBAO GOLD, TONGGUAN GOLD, ZIJIN GOLD INTL, Shandong Gold Mining, Chifeng Jilong Gold Mining, Shanjin International Gold, Zhongjin Gold Corp., Ltd, etc. as well as silver stocks such as Inner Mongolia Xingye Silver&Tin Mining, Shengda Resources, and others. Textile and Apparel Starting in 2024, the demand in the gold and jewelry industry is showing structured characteristics: 1) Consumption by the middle class and high-net-worth individuals in mainland China is weak, with a rational consumption trend; 2) The continuous rise in gold prices has led to a decline in the consumption of gold jewelry since 2024; 3) Brands such as CHOW TAI FOOK are focusing on upgrading craftsmanship and integrating Chinese traditional culture, allowing gold to break free from its traditional constraints and become mainstream in the domestic jewelry fashion market through craftsmanship upgrades. Among them, CHOW TAI FOOK has returned to a high-end positioning, with channel reform efforts and product upgrades exceeding expectations. In the third quarter of this year, the company's overall retail value increased by 4.1% year-on-year, with same-store sales in mainland China increasing by 7.6%. High-margin priced products contributed 30% to retail value, leading to a continuous improvement in profitability. Amid operational adjustments, the company continues to hold jewelry and art exhibitions to enhance brand momentum. Risk warning: Economic data below expectations, unexpected overseas tightening, and past experience does not guarantee future results.