CICC: A new round of interest rate cuts is expected to start, and the Davis double hit in the gold sector is likely to continue

According to the Zhitong Finance APP, China International Capital Corporation (CICC) released a research report stating that the U.S. non-farm payrolls in July fell short of expectations, signaling a weakening U.S. economy. As of August 3rd, the probability of a rate cut in September on the CME has risen to 80.3%. A new round of rate cut trading is expected to begin, and actual interest rates may decline. Domestically, the "Implementation Plan for the High-Quality Development of the Gold Industry" (2025-2027) was recently released, clarifying the key directions for domestic gold resource development, including key resource exploration, development areas, and key mining projects, to promote the increase of domestic resource reserves and production. It is recommended to pay attention to gold listed companies that have resource integration, reserve increase, production, and merger expectations.

CICC's main viewpoints are as follows:

Industry Status: In early August, it was disclosed that the U.S. non-farm employment added 73,000 jobs in July, falling short of the market expectation of 104,000, with a cumulative downward revision of 258,000 for May and June, setting a record since June 2020. In June, the Ministry of Industry and Information Technology and eight other departments issued the "Implementation Plan for the High-Quality Development of the Gold Industry (2025-2027)."

A new round of rate cut trading is expected to start

Firstly, the U.S. non-farm payrolls in July fell short of expectations, signaling a weakening U.S. economy; secondly, since the imposition of reciprocal tariffs in April, inflation has remained generally controllable, with the U.S. CPI year-on-year rate at 2.7% in June meeting expectations, and the core CPI year-on-year rate at 2.9%, slightly below expectations. As of August 3rd, the probability of a rate cut in September on the CME has risen to 80.3%. A new round of rate cut trading is expected to begin, and actual interest rates may decline.

Rate cut trading is expected to resonate with de-dollarization, driving gold prices to start a new upward trend

In the first half of 2025, global gold demand was 2,384.6 tons, up 13% year-on-year, down 5% quarter-on-quarter. From the demand structure, gold demand in the first half of 2025 showed two characteristics: firstly, the trend of global central bank gold purchases has slightly weakened but continues. In the first half of 2025, global central banks net purchased 415 tons of gold, down 21% year-on-year and down 26% quarter-on-quarter. The People's Bank of China resumed gold purchases in November 2024, having increased holdings for eight consecutive months. Secondly, global gold ETFs saw a net inflow of 397 tons, setting the highest record for the first half of the year since 2020, with a significant year-on-year and quarter-on-quarter increase.

According to CICC's calculations, from 2022 to 2024, the negative correlation coefficients between net inflows of North American and European gold ETFs and U.S. real interest rates are -0.21 and -0.35, respectively. However, in the first half of 2025, net inflows of European and American gold ETFs surged to 286 tons, contradicting the sustained high levels of U.S. real interest rates. As the trend of de-globalization deepens, European and American gold ETFs have begun to show a "de-dollarization" tendency similar to central bank gold purchases, with a significant decrease in correlation with U.S. real interest rates. From the beginning of 2025 to the present, the daily increase/decrease in gold holdings by SPDR has a negative correlation coefficient of only -0.019 with ten-year TIPS.

The gold sector is soaring, and the Davis double-hit is expected to continue

Global gold mining companies' profit per ounce is expected to continue to widen. The average pre-tax profit per ounce for global gold companies has been recovering since the decline from Q3 2020 to Q4 2023, continuing to rise from Q1 2024 to Q1 2025. Assuming a 5% increase in the average all-in sustaining cost (AISC) of global gold in 2025, based on the average London gold price of $3,075 per ounce in the first half of 2025, the pre-tax profit per ounce is estimated to be $1,546, an increase of 63% compared to $952 in 2024 It is estimated that the total net profit attributable to shareholders of major domestic gold listed companies in Q1 2025 will increase by 63% year-on-year, and the total net profit attributable to shareholders of A-share gold companies that have already announced forecasts for H1 2025 will increase by 57% year-on-year.

The "Implementation Plan for High-Quality Development of the Gold Industry" (2025-2027) has been released, and the growth potential of gold companies is expected to be further strengthened. The "Plan" points out that gold, as a strategic mineral resource, is of great significance for maintaining national industrial and financial security. It clarifies the key directions for the development of domestic gold resources, including key resource exploration, development areas, and key mining projects, to promote the increase of domestic resource reserves and production.

Risk Factors

U.S. inflation exceeds expectations, and the Federal Reserve's interest rate cuts are less than expected, leading to gold listed companies' performance falling short of expectations