CITIC Securities Co., Ltd.: Under the neutral assumption, gold prices are expected to exceed USD 3,730 per ounce by the end of the year

According to the Zhitong Finance APP, CITIC Securities has released a research report stating that since the end of April, gold has been in a volatile market, influenced by factors such as tariff shocks, U.S. fiscal policy, geopolitical issues, and central bank gold purchases, creating a complex balance of long and short positions. However, changes in these factors are expected to open up an upward trend for gold. The expectation of improved tariffs may come to a temporary halt, while the impact of stagflation may just be beginning to manifest; the likelihood of a significant decrease in geopolitical risks within the year is low; the Federal Reserve may begin to cut interest rates earlier than expected; and the trend of global central bank gold purchases remains stable. Under a neutral assumption, CITIC Securities' model predicts that gold prices are expected to exceed $3,730 per ounce by the end of the year.

CITIC Securities' main points are as follows:

Since the end of April this year, gold has entered a volatile market.

We believe that the long-term factors affecting gold prices have not changed, mainly due to a series of short-term bullish and bearish factors reaching a balance.

Bullish factors include:

1. The stagflation pressure on the U.S. economy from Trump's tariff policy is beginning to manifest. From May to July, the U.S. CPI inflation has been rising month-on-month, while new non-farm employment has shown a significant decline. Private sector consumption growth in the second quarter GDP is also weak. The stagflation impact of the tariff policy has begun to show preliminary effects.

2. Geopolitical turmoil has continued in the second quarter. The Russia-Ukraine conflict is still ongoing, and the Israel-Palestine conflict worsened at one point in the second quarter.

3. Market expectations for the Federal Reserve to cut interest rates are gradually becoming clearer. Since Trump took office, he has continuously pressured the Federal Reserve and its Chairman Jerome Powell, and has also taken action regarding the appointment of Federal Reserve governors.

Bearish factors include:

1. Since the end of April, market expectations for the intensity of the Trump administration's tariff policy have been cooling. After the severe tariff policy shock on April 2, the Trump administration entered a phase of pragmatic negotiations, and market expectations for tariff policies have continued to cool.

2. The pace of net gold purchases by global central banks slowed in the second quarter. According to the World Gold Council, global central banks net purchased about 166 tons of gold in the second quarter, showing a year-on-year decline.

3. There are signs of a warming risk appetite in China's capital market. The good performance of the A-share market has suppressed the inflow of funds into the domestic gold market.

However, we believe that some important factors are changing, and the balance may be tilting towards the bulls:

1. Market expectations for uncertainty regarding tariff policies have dropped to a sufficiently low level. However, the stagflation impact of tariff policies may slowly ferment, benefiting the upward movement of gold prices. Currently, Trump has claimed to have reached trade agreements with major trading partners, and market risk expectations have significantly cooled, but there are still risks of volatility in the future. Moreover, due to the complex processes of commerce and tariff collection, the impact of tariffs on stagflation is expected to remain insufficiently fermented.

2. The "Big and Beautiful Act" has made the expectation of disorderly expansion of U.S. national debt more explicit. At the same time, the fiscal deficit expansion from the "Act" may have limited support for the U.S. economy. It is expected that this Act will add an additional $500 billion to the deficit next year, significantly expanding federal debt. The tax cuts in the Act are concentrated on the middle and high-income groups, while spending cuts are focused on low-income groups. This "robbing the poor to pay the rich" approach may limit the economic support effect, making it difficult to offset the drag of tariff policies on the U.S. economy

3. In terms of geopolitical factors, it is expected that there will be no negative impact on gold within the year. There is a possibility that the Russia-Ukraine conflict may ease, but currently, the contradictions among all parties remain prominent, and it is expected to take a considerable amount of time.

4. It is anticipated that the Federal Reserve will adopt a more proactive interest rate cut path, which may lead to a more stable bull market for gold. Powell's statements at the Jackson Hole annual meeting indicate that the Federal Reserve's stance may shift towards easing, and an earlier-than-expected interest rate cut could pose a higher inflation risk compared to the risk of an economic hard landing, which is expected to stabilize the upward momentum of gold.

5. Global central bank gold purchases remain an important support. Observing changes in net gold purchases by central banks based on the value of gold rather than weight may align better with the working logic of central bank balance sheet adjustments. In terms of the value of gold purchases, global central bank gold buying funds are still expanding year-on-year. Among them, the People's Bank of China remains an important support for the gold market.

Under the neutral hypothesis, our six-factor model for gold prices expects that by the end of 2025, gold prices are likely to exceed $3,730 per ounce.

Risk Factors:

Federal Reserve monetary policy easing is lower than expected; U.S. inflation is lower than expected; geopolitical risks are lower than expected; global economic growth exceeds expectations; global central bank gold purchases are lower than expected; equity market performance exceeds expectations