Shenwan Hongyuan: "Concerns" After Gold Prices Hit New Highs?

According to the Zhitong Finance APP, Shenwan Hongyuan Securities released a research report stating that since August, gold prices have continued to rise, reaching new historical highs. However, this round of gold price increases may primarily be driven by European and American investors, with Asian investors not showing signs of "relay." The Federal Reserve's interest rate cut space and the subsequent performance of the Chinese stock market may be key factors in determining whether gold can continue to break through. 1) The current market expects the Federal Reserve to cut interest rates three times in a row, and this may have been relatively fully priced in. 2) Since August 26, the A-share market has consolidated, but investors have not increased their holdings of gold, which is markedly different from last October; this may indicate that the bullish atmosphere in the A-share market is still present, and the "stock-gold seesaw" may continue.

The main points of Shenwan Hongyuan Securities are as follows:

(1) What is the main reason for the recent new highs in gold? The expectation of Federal Reserve interest rate cuts has risen, coupled with the narrative of the Fed's "independence" catalyzing the situation.

Since late August, gold has risen sharply, primarily due to the decline in real interest rates against the backdrop of rising expectations for interest rate cuts. Since late August, the price of gold has risen from USD 3,315.7 per ounce on August 20 to USD 3,643.1 per ounce on September 12, repeatedly setting new highs, mainly driven by the decline in real interest rates caused by rising expectations for interest rate cuts.

Lower-than-expected inflation pressure in the U.S., weak employment data, and Trump's intervention in the Fed's "independence" are the main reasons for the rising market expectations for interest rate cuts. 1) Inflation related to tariffs remained weak in August. 2) Non-farm payrolls added only 22,000 jobs in August, significantly below expectations. 3) Trump's intervention in the Fed's "independence" further catalyzed the "fermentation" of interest rate cut expectations.

(2) Why is gold in the Asian market "lagging behind"? The A-share bull market is siphoning off allocation funds, and the rapid appreciation of the RMB also has an impact.

The recent rise in gold prices has mainly come from European and American investors, with no significant increase in gold prices in the Asian market. 1) Breaking down by trading session, since August 20, the cumulative growth rate of gold prices during the U.S. trading session has been 7.7%, which is the main driving force behind the rise in gold. 2) In terms of gold ETF flows, since August, European and American investors have increased their holdings by 37.1 tons and 20.8 tons, respectively, while Asian investors have reduced their holdings by 4.8 tons.

The seesaw effect caused by the A-share bull market may be the main reason for the "lag" in the Asian market. Historically, demand from European and American investors is easily influenced by real interest rates, while Chinese investors' allocation to gold is more affected by the performance of the equity market. The strong performance of the A-share market recently, coupled with the rapid appreciation of the RMB, may have suppressed domestic investors' demand for gold to some extent.

(3) Can gold prices continue to "break through"? Pay attention to overseas interest rate cut trading space and the domestic "stock-gold seesaw" dynamics.

As an asset priced by marginal flow funds, central banks, European and American investors, and Chinese investors are the three main pricing entities for gold; among them, central bank purchases of gold are a "slow variable" and difficult to predict in rhythm, so it is not advisable to overly expect short-term boosts to gold prices. In the first half of 2025, global central banks purchased 415 tons of gold, which is in line with the average of the past three years; short-term acceleration in central bank purchases of gold is unlikely, providing more medium-term support for gold prices The Federal Reserve's room for interest rate cuts and the subsequent performance of the Chinese stock market may be key to whether gold can continue to break through. 1) Current market expectations are that the Federal Reserve will cut interest rates three times in a row, and this may have been relatively fully priced in. 2) Since August 26, the A-shares have been consolidating, but investors have not increased their holdings of gold, which is markedly different from last October; this may indicate that the bullish atmosphere in the A-share market is still present, and the "stock-gold seesaw" may continue.

Risk Warning

Escalation of geopolitical conflicts; U.S. economic slowdown exceeding expectations; Federal Reserve turning "hawkish" beyond expectations