Sinolink: Industrial and strategic metals may become the main players in this round of government reserve demand, with prices expected to move significantly higher.

Sinolink releases a research report stating that historically, the core DRIVE affecting the reserve of strategic resources in the United States is geopolitical, and fiscal pressure also affects reserve behavior. From the perspective of global gold reserves, the trend of geopolitical risk reduction is a key factor driving the decline in the proportion of gold reserves, while concerns about the US dollar credit are the key driving force for the increase in the proportion of gold reserves. Considering the current extremely low level of US strategic stockpiles, and the fact that the current "Gold Reserve Plan" adopts a government and enterprise cooperation operation method, metals with industrial and strategic attributes such as copper, silicon, rare earths and gallium and germanium may become the main players in this round of reserve demand, leading to a significant upward shift in prices. The main viewpoints of Sinolink are as follows: History of US strategic resource reserve: the core drive lies in geopolitical factors, fiscal pressure will affect reserve behavior The US government's reserve of strategic resources can be traced back to 1939, and in the nearly 90 years since then, the history of the US government's reserve of strategic resources can be roughly divided into four stages. The first stage is the period of reserve expansion from 1939 to 1960. Against the backdrop of World War II, the Korean War, and the US-Soviet confrontation, the US strategic resource stockpiles expanded significantly. The second stage is the 1960s, when the focus of the Cold War gradually shifted from military confrontation to economic and technological competition. The US government began to reduce its strategic resource reserves, while also selling a large amount of resources to address the shortage of chromium and nickel caused by overseas strikes. The third stage is the policy dilemma period from the 1970s to the 1980s. On one hand, due to the oil crisis, senior US government officials began to re-emphasize the importance of strategic resource reserve work. But on the other hand, the demands of environmental protection and fiscal matters made the US government indecisive about official strategic resource reserves. Faced with pressure from budget deficits, the US government sold strategic resource inventories several times to generate financial income. The fourth stage is the period after the 1990s when there was a significant reduction in strategic resource inventories. The decrease in geopolitical risk was a core factor leading to this change. The "1993 Fiscal Year National Defense Authorization Act" lowered the reserve requirements for most minerals to zero, leading to a rapid decline in US strategic resource stockpiles. By 2024, the nominal value of these reserves was less than $1 billion, reaching a historic low since the data has been recorded in the 1960s. Overall, the core factors leading to the US government's change in attitude towards strategic resource reserves are geopolitical risk and increasing fiscal pressure, which may make the government more inclined to sell strategic resource reserves. Changes in global official gold reserves: Long-term depend on geopolitical and US dollar credit, fiscal pressure may have a periodic impact The changes in the proportion of gold in global reserve assets since World War II can also be divided into four stages: a decrease from the post-war period to the early 1970s, an increase from 1970 to 1980, a significant decrease from 1980 to the financial crisis of 2008, and a trend upward since the 2008 financial crisis. The trend of a decrease in geopolitical risk is a key factor driving the decline in the proportion of gold in official reserve assets: in the early 1960s and early 1980s, the trend item after filtering the geopolitical risk index shifted from an increase to a decrease, coinciding with the continuous decrease in the proportion of gold in official reserve assets. Concerns about US dollar credit are a key driving force for the proportion of gold reserves. After the decoupling of gold in the early 1970s, the US dollar depreciated internally and externally, and the rapid expansion of the US QE and fiscal expenditures after 2008 led to an increase in the proportion of gold reserves. One issue that investors often overlook is that the increase in fiscal pressure may periodically strengthen the government's demand to sell gold reserves. Under fiscal pressure, Germany in 1997, Lebanon in 2002, and South Africa in 2024 all reassessed their official gold reserves to generate financial income. The case of South Africa is particularly representative. In hindsight, the net financing of the South African government in 2024 did indeed show a significant decline, and at the same time, the 10-year bond yield, 10-year yield and US bond yield spread all converged, at least achieving the goal of reducing government interest payments on a temporary basis. From the perspective of government reserves, the opportunities and risks of commodities The trend item of the geopolitical risk index turned upwards after 2020. Against the backdrop of sustained geopolitical risk and continuous escalation in the short term, the US demand for commodity reserves or may end the downward trend since 1980, similar to the situation after 1930, entering a long-term upward channel. The US has proposed a $12 billion "Gold Reserve Plan" for strategic resource reserves, marking the beginning of a global resource reserve trend. Unlike past US government-driven strategic resource reserve activities, the "Gold Reserve Plan" adopts a public-private partnership approach, focusing more on supply chain security in economic production rather than national defense security. From the perspective of supply chain security, the focus of overseas strategic resource reserve attention may be on the concentration of resource supply and the importance of new technologies represented by AI. Meanwhile, strategic resources benefiting from high supply concentration at the national level and benefiting from AI development include copper, silicon, rare earths, gallium, and germanium, with China being the largest producer of gallium, silicon, germanium, and rare earths, with domestic production accounting for over 50% of global output. From the perspective of potential risks, considering the fiscal pressure facing the US government, the rise in gold prices driven by central bank purchases worldwide may be curbed: current US government interest payments account for over 20% of fiscal revenue. If US fiscal deficits continue to expand in the future and the willingness of overseas institutions to allocate US bonds decreases due to the rise in gold prices, it cannot be ruled out that the US government may sell gold to finance the deficit. Considering the current extremely low level of US strategic stockpiles, and the fact that the current "Gold Reserve Plan" adopts a government and enterprise cooperation operation method, metals with industrial and strategic attributes such as copper, silicon, rare earths and gallium, germanium, etc., may become the main players in this round of reserve demand, leading to a significant upward shift in prices. Risk Warning Domestic economic recovery falls short of expectations; overseas economies experience a significant downturn.