GF Securities: It is expected that London gold will consolidate and fluctuate by the end of the year and reach a new high in the first quarter of next year.

GF SEC released a research report stating that the short-term position of gold is still not low, and the volatility is high. Additionally, geopolitical risks are marginally declining. Without any unexpected bullish factors, it is expected that London gold will trade in a range before the end of the year and then reach new highs in the first quarter of next year. The continued rise in gold may require two necessary conditions: (1) implied volatility to fall to the levels of 8-9 months ago; (2) new driving factors at the macro level. GF SEC's main points are as follows: Why did gold recently experience a sharp drop? The main reasons for the deep correction of this round of gold are: (1) gold implied volatility is high, profit-taking after a sharp rise may weaken the trend of capital inflows; (2) the market has priced in too much geopolitical instability in advance, but tensions in US-China relations and the Russia-Ukraine conflict have eased recently. Reiterating the logic of being bullish on gold in the long term: (1) Macro narrative: Since the outbreak of the pandemic, the US debt and fiscal deficit have continued to expand, with the federal government debt level reaching historic highs. Concerns about the unsustainability of US debt are gradually impacting the international capital flow system built on the "US dollar-US debt" mechanism. The expansion of the US twin deficits forces it to transfer the crisis externally. In recent years, global economic policy uncertainty and geopolitical risks have become more apparent. There are only three ways to solve the global debt problem: unexpected high inflation eroding debt, favorable for gold and commodities but subject to interest rate hikes; technological progress leading to economic growth eating away at debt, benefiting AI technology; proactive fiscal tightening may cause exacerbation of domestic and international contradictions and anti-globalization. Therefore, if the debt problem is not fundamentally resolved, the logic of being bullish on gold in the long term remains unchanged. (2) Fundamentals: The decline in real interest rates still provides marginal support for the gold price. After the October interest rate meeting, the Fed initiated a new round of rate cuts and planned to stop shrinking its balance sheet in December. The continuation of monetary easing combined with the rise in inflation will provide strong support for the gold price. (3) Fund flows: ETF funds and central bank gold purchases continue to drive the gold price upwards. On one hand, since the end of August, European investors have been noticeably absent in the market. If the US economy weakens further, European investors are likely to abandon dollar assets and reinvest in gold, with this incremental capital potentially driving gold to new highs. On the other hand, the long-term debt crisis leading to the remodeling of the global monetary credit system, de-dollarization, anti-globalization trends, and continued central bank gold purchases will support the rise in gold prices. When will gold stabilize & future trading patterns: The short-term position of gold is still not low, and the volatility is high. Additionally, geopolitical risks are marginally declining. Without any unexpected bullish factors, it is expected that London gold will trade in a range before the end of the year and then reach new highs in the first quarter of next year. The continued rise in gold may require two necessary conditions: (1) implied volatility to fall to the levels of 8-9 months ago; (2) new driving factors at the macro level. Risk warning: Geopolitical conflicts escalating beyond expectations leading to global inflation pressures exceeding expectations; Overseas inflation and the resilience of the US economy easing global liquidity (timing of Fed rate cuts, extent of US bond rate declines) lower than expected; Domestic growth stabilization policies falling short of expectations leading to weak economic recovery and a decline in market risk appetite, etc.