Hua Long Securities: Amid geopolitical conflicts, the Federal Reserve of the United States turns hawkish, putting pressure on non-ferrous metals.

Hualong Securities released a research report stating that the ongoing escalation of the US-Iran conflict makes it hard to see a turning point in the short term. The surge in energy prices leads to high inflation expectations, while also raising concerns about economic growth. In the short term, there is increased volatility in gold prices, but the long-term logic remains unchanged, and the narrative of industrial metal demand is challenged. It is recommended to focus on gold leading companies with scale advantages and dividend characteristics, such as Zijin Mining Group (601899.SH), Shandong Gold Mining (600547.SH), and Zhongjin Gold Corp., Ltd (600489.SH). Key Points from Hualong Securities: Events On March 18th local time, the Federal Reserve announced that it will maintain the federal fund rate target range between 3.5% and 3.75%, which was in line with market expectations and the second consecutive time this year that the Federal Reserve has kept rates unchanged. Geopolitical conflicts have raised inflation expectations, and under the dual goals of inflation and growth, the Federal Reserve's policy rate is further constrained. Since the outbreak of the US-Iran conflict, factors such as disrupted shipping in the Strait of Hormuz have caused short-term increases in oil prices, directly raising US energy costs and inflation expectations. The previous narrative of stable rate cuts in the market has loosened, and this meeting raised the core PCE inflation expectation for 2026 from 2.4% to 2.7%. Additionally, the GDP growth expectation for 2026 was raised from 2.3% to 2.4%. Under the dual pressures of economic growth resilience and inflation stickiness, the Federal Reserve has limited wiggle room in its forward guidance. The dot plot indicates a hawkish signal, suggesting only a 25 basis point rate cut space for the whole of 2026. During the subsequent press conference, Chairman Powell emphasized that the rebound in energy prices following the escalation of the Middle East geopolitical conflict on February 28th will raise inflation, but the extent and duration of its impact remains uncertain. With the Federal Reserve's hawkish expectations, gold faces short-term volatility, and industrial metal expectations are under pressure. After the rise in energy prices raised inflation expectations, the Federal Reserve's hawkish stance puts pressure on gold in the short term, facing the loss of its safe-haven property, and the second surge of the US dollar also exerts strong pressure on gold prices. However, in the long run, the logic of sovereign credit risk concerns remains unchanged. Industrial metals such as copper and aluminum face dual pressure from rising costs and weakening demand. In the previous market cycle, copper and aluminum benefitted from supply tightening and warming demand expectations, but against the backdrop of escalating conflicts, the logic of industrial metal faces challenges and is under pressure for a rebound. Risk Warning: Further escalation of the US-Iran conflict; normalization of the blockade of the Strait of Hormuz; setbacks in the US economic recovery; changes in the pace of Federal Reserve rate cuts; risks associated with data references.