CITIC SEC: Gold price floor may rise; pay attention to rebound opportunities in the gold sector.

CITIC SEC released a research report stating that since September, better-than-expected ETF and central bank buying have provided a relatively sufficient hedge against liquidity-driven selling on the futures side. Over the past two weeks, the gold price has shown signs of stabilizing at the bottom, and the gold price floor is expected to rise compared with late June. Drawing an analogy to July, when the gold sector rebounded ahead of the gold price, if the current gold price stabilizes, it will become an important signal for a rebound in the gold sector. Pay attention to rebound opportunities in the gold sector. The main views of CITIC SEC are as follows: The core factor behind the September gold price decline was liquidity tightness against the backdrop of a sharp rise in U.S. Treasury yields. Looking back recently, spot gold fell in a volatile manner from a stage high of nearly $4,700/oz at the end of August to around $4,100/oz at the end of September, and has shown signs of bottoming out over the past two weeks. The bank believes that the main selling force behind the September gold price decline came from the futures side (according to U.S. Commodity Futures Trading Commission data, COMEX net long positions decreased by about 85 tonnes), while futures-side selling was mainly affected by the sharp rise in U.S. Treasury yields and liquidity liquidation (the 10-year U.S. Treasury yield rose from 4.75% at the end of August to 5.29% at the end of September). The rise in U.S. Treasury yields was due, on the one hand, to tightening expectations under inflation concerns caused by high oil prices against the backdrop of the prolonged U.S.-Iran conflict; on the other hand, it was due to a rise in term premium amid concerns over debt expansion. Investment demand and central bank allocation demand showed better-than-expected resilience. At the same time, compared with the large outflow on the futures side, ETF inflows (net inflow of 67 tonnes in September) and central bank gold purchases (China added 23 tonnes in September, setting a new record) showed stronger-than-expected momentum. Supported by these two sources of buying, compared with the end of June (around $4,000/oz), the gold price in this round has shown signs over the past two weeks of a rising floor ($4,100-$4,200/oz). Specifically: 1) On the ETF side (investment attribute): according to World Gold Council data, global gold ETF holdings increased by a net 67 tonnes in September. Although this was a month-on-month decline against the backdrop of increased Fed tightening expectations (net increase of 120 tonnes in August), it still recorded a net increase, and increases in the three major regions of North America, Europe, and Asia remained relatively even, reflecting better-than-expected resilience in investment demand. Although the 10-year U.S. Treasury real yield rose from 2.44% at the end of August to 2.93% at the end of September, on the one hand, the difficult-to-resolve U.S.-Iran conflict and high oil prices pushed up medium-term inflation expectations (compared with the April forecast of 2.4%, the IMF's October forecast for U.S. CPI growth in 2027 was revised up to 2.8%); on the other hand, hidden concerns about U.S. employment resilience remain (U.S. nonfarm payrolls increased by 29,000, far below the market expectation of 90,000, while the previous value was revised down from 162,000 to 133,000; after the data release, the market also lowered expectations for Fed rate hikes in October and December). Real interest rate expectations are unlikely to rise, which helps gold investment demand remain strong. 2) On the central bank gold purchase side (monetary attribute): according to People's Bank of China data, China's central bank bought a net 740,000 ounces of gold in September (about 23 tonnes), continuing to increase by 90,000 ounces month-on-month and setting a new single-month high since the start of this gold purchase cycle. Since the gold price fell below $5,000/oz in March, the central bank's single-month net gold purchases have continued to increase, rising from 160,000 ounces in March to 740,000 ounces in September. Considering that historically gold purchase demand represented by China's central bank has generally shown strong forward-looking behavior and inertia, the bank believes that central bank gold purchases and their support for the gold price are still expected to remain at a relatively high level. The gold price floor may rise, and the gold sector is expected to lead. On the gold price side, first, ETF and central bank gold purchase demand may have already led to a rise in the gold price floor; second, the subsequent outlook for the gold price still has positive conditions. If the U.S.-Iran conflict eases before the U.S. midterm elections, then an improvement in oil price expectations will create a foreseeable window for easing market tightening expectations, and the rise in U.S. Treasury yields may moderate. Whether from the perspective of liquidity (reduced futures selling) or liquidity expectations (continued ETF buying), this is conducive to a gold price recovery. On the gold sector side, looking downward, referring to the bottom gold price of $4,000/oz in 2026 at the end of June, the bank estimates that the gold sector's PE bottomed at around 15x. Under the current assumption of $4,200/oz, the sector's 2026/2027 PE is 15x/12x, and the valuation bottom is expected to be verified again. Looking upward, gold equities usually rebound ahead of the gold price. Similar to the gold price bottoming phase in July, the CITIC Gold Index has already rebounded by more than 20% from the bottom. Therefore, if the current gold price stabilizes, it will become an important signal for a rebound in the gold sector. Risk factors: unexpected developments in the Middle East situation; continued rise in Fed rate hike expectations; unexpected developments in the U.S. midterm elections; enterprise output growth lower than expected and cost growth higher than expected due to mine safety production and environmental protection issues; operational risks of gold mining companies' overseas assets, etc.