Zhongjin: The US policies and economy have not yet shown a turning point, the bull market for gold may continue, maintaining an overweight position in gold.

China Gold released a research report stating that the recent gold price once broke through $4500 per ounce, hitting a new historical high. Behind this is the support of three factors: the Federal Reserve restarting a loose monetary policy cycle, the decline in the reputation of the US dollar, and the escalation of global geopolitical risks. The bank believes that the expansion of US debt and fiscal deficits, or whether global central banks accelerate gold purchases, have limited significance for indicating the top of the gold bull market. Currently, the Federal Reserve is still in a loose cycle, and the US economy is still plagued by stagflation. Therefore, the gold bull market may continue until a turning point is seen in US policy and economy, maintaining an overweight position in gold. In addition, Chinese stocks continue to benefit from the AI technology wave and ample liquidity, with reasonable valuations currently. There have been no signals of a market top, and therefore the bank remains optimistic about the reevaluation of Chinese assets, maintaining an overweight position in Chinese stocks. The main points of China Gold are as follows: Why is gold rising significantly? The recent rise in gold prices to over $4500 per ounce, hitting a new historical high, is supported by three factors: first is the Federal Reserve restarting a loose policy cycle. After keeping policy rates unchanged for 9 months, the Federal Reserve resumed rate cuts in September of this year, with three consecutive cuts of 25 basis points each, and announced the purchase of short-term bonds starting in December, expanding the central bank's balance sheet and injecting liquidity into the market. Looking into 2026, the Federal Reserve's forward guidance indicates that interest rate cuts may continue next year. The general direction of the Federal Reserve's monetary policy is turning more accommodative, supporting gold performance. Second is the decline in the reputation of the US dollar. After the epidemic, the US fiscal deficit rose to around 6%, much higher than before the epidemic, leading to a rapid accumulation of national debt, increasing debt risks. In addition, the current US President, Trump, has increased interference in Federal Reserve decisions, with the current Federal Reserve Chairman Powell's term ending in May 2026, and Trump is expected to nominate a new Federal Reserve Chairman, raising concerns about the independence of the Federal Reserve. Combined with fiscal and monetary factors, investor confidence in the US dollar system and dollar assets has decreased, leading to a period of dollar depreciation, with the US dollar index falling by about 10% this year. Gold has monetary attributes and serves as an alternative to the current US dollar system during the process of US credit divergence. Lastly, the escalation of global geopolitical risks. Gold represents a safe haven asset, benefiting relatively at this time. While the price of gold has risen significantly, the increase in silver prices may be even greater, possibly influenced by industrial supply-demand factors. Since silver has industrial attributes, demand is highly sensitive to manufacturing cycles and the new energy sector. Demand for silver in areas such as global photovoltaic installations, new energy vehicles, electronics, and electrical equipment continues to increase in 2025, while the supply of silver is limited, leading to a tightening supply-demand balance. How much longer can gold rise? The current gold bull market has lasted for 3 years, with a rise of 2.7 times, and there is a tendency in the market narrative to prolong the rise in gold. Since the fourth quarter of 2022, the Large Asset Allocation team at China Gold has been recommending overweighting gold for 3 consecutive years. However, the bank believes that the price of gold will not rise indefinitely, and the transition between bull and bear markets is a normal phenomenon. It is not advisable to use grand narratives to guide investment decisions, but rather to use data models to objectively analyze the laws of asset operation. After reviewing the bull and bear characteristics of major global asset classes, the bank found that the total duration of gold bull and bear markets is relatively balanced, with the duration of a single bear market being the longest among major asset classes. Therefore, after gold has risen significantly for 3 years, it is now necessary to study the general rules for the end of a gold bull market and prepare in advance. The bank previously analyzed the top five gold bull markets in history and found that a clear tightening of monetary policy by the Federal Reserve and fundamental improvement in the US economy (growth up, inflation down) were the most effective signals of a bull market top. The expansion of US debt and fiscal deficits, or whether global central banks accelerate gold purchases, have limited significance for indicating the top of the gold bull market. Currently, the Federal Reserve is still in a loose cycle, and the US economy is still plagued by stagflation (growth down, inflation up), so the gold bull market may continue before seeing a turn in US policy and economic indicators; the bank maintains an overweight position in gold. How much longer can gold rise? At the beginning of 2024, the price of gold rose from a low of $1640 per ounce in October 2022 to near $2000 per ounce, with significant divergence in market valuations of gold. The bank firmly believes that gold is not overvalued, suggesting that traditional pricing frameworks are becoming ineffective, and for the first time using a four-factor model (real interest rates, the US dollar, central bank gold purchases, and US debt size) to systematically explain and forecast gold prices, proposing a central price for gold at $2400 per ounce. In January 2025, the bank upgraded to Gold Model 2.0, raising the long-term price forecast for gold to $3300-5000 per ounce. Currently, with gold rising to around $4500 per ounce, it has already exceeded the bank's long-term price forecast. Based on current fundamental indicators, the price of gold is already significantly higher than the calculated short-term valuation central point, indicating a potential bubble. Since there has been no turning point in Federal Reserve policy and the US economy, the gold bull market may not have ended. However, with gold prices already deviating from fundamental indicators and model fittings, market volatility may increase significantly, making specific price predictions more difficult. The bank suggests de-emphasizing gold price point predictions and paying more attention to changes in asset trends. The bank expects that in the beginning of 2026, due to upward pressure on US inflation and marginal improvement in US growth, the Federal Reserve may slow down its loose pace or impose temporary suppression on gold performance. Looking further ahead, with a new Federal Reserve Chairman taking office in May 2026 and a potential downturn in US inflation in the second half of 2026, the Federal Reserve may accelerate rate cuts again, providing new support for the continued rise in gold prices. Therefore, the future gold bull market may not be a one-way trend, but may fluctuate based on Federal Reserve policy and US economic trends. The above logic also applies to silver and other commodities. Due to the smaller market size and lower liquidity of silver, price fluctuations may be larger than gold. Asset allocation recommendations: Maintain overweighted gold, seize short-term trading opportunities and liquidity spillover opportunities, raise commodities to a standard position, maintain overweighted Chinese stocks, underweight Chinese bonds, and standard-weight US stocks and bonds. Gold has experienced significant gains this year, with high valuations, and a potential risk of the Federal Reserve easing expectations in early 2026. Considering that the Federal Reserve is expected to accelerate its easing again next year, if the price of gold falls significantly in the early part of next year, it may present an opportunity for adding positions at a lower price. After the significant rise in the price of gold, other commodities such as copper and silver have also shown strong performance recently, reflecting the liquidity spillover effect of gold. In addition, commodities can also hedge against geopolitical risks and the risk of overheating in the US economy. The bank has recommended raising commodities to a standard position in the annual outlook, especially bullish on non-ferrous metals. At the same time, the bank notes that silver and other metals have a smaller market size and lower liquidity compared to gold, so if gold experiences volatility next year, the risk of a price correction is also higher, and risk control measures are recommended to avoid blind chasing. Chinese stocks continue to benefit from the wave of AI technology and ample liquidity, with reasonable valuations currently and no signals of a market top. Therefore, the bank remains optimistic about the reevaluation of Chinese assets, maintaining an overweight position in Chinese stocks. In terms of style, as the stable growth policy is relatively mild, the market style may still focus on technology growth in the short term, and the shift between cyclical and value styles will require clearer economic or policy signals. Chinese bonds are already at relatively low levels of interest rates, with relatively high valuations, and limited capacity for long-term bond supply, increasing the possibility of a further steepening of the yield curve. It is recommended to maintain an underweight position in Chinese bonds. Regarding overseas assets, US stocks are also benefiting from macro liquidity and the trend of the AI industry, but with low flexibility in a period of US dollar depreciation and concerns about high valuations, the risk of chasing highs is high. It is recommended to maintain a standard position in US stocks. It is also important to note that if there is a phase of economic growth and inflation rebound in the US economy in the first quarter of next year, there is a possibility of a shift from growth to value styles. For US bonds, there may be disturbances at the beginning of next year due to the rising inflation and the easing of expectations. After the implementation of the "Build Back Better Act" at the beginning of the year, the issuance of US Treasury bonds may increase. If the "equal tariffs" are overturned by the Supreme Court, there is also a risk of temporary increased issuance of US bonds to raise funds, which may have a negative impact on US bond performance, it is therefore recommended to continue with a standard allocation of US bonds in the short term. In the medium term, the market is only expecting the Federal Reserve to cut interest rates twice in 2026, which the bank considers too conservative. With the new Federal Reserve Chairman taking office in May next year and the potential for the US inflation to enter a downtrend in the second half of the year, the Federal Reserve may have the conditions to cut interest rates more than twice, possibly causing the 10-year treasury yield to drop to around 3.5%, the bank recommends waiting patiently for the timing to increase exposure to US bonds.