Gold and non-ferrous metals have adjusted, and the market has peaked or a chance to get on the bus?|"Titanium Bull, Stock Market!"

Recently, there has been a pullback in international gold prices. In terms of futures, on April 22, COMEX gold futures fell by more than 3% in a single day. On April 23, the price of COMEX gold futures fell again, falling by more than 1%. Affected by the adjustment of international gold prices, the non-ferrous metal sector has also been sharply adjusted, on April 22, the price of non-ferrous leading ETF closed down 2.75%, and on April 23, non-ferrous metals also fell significantly across the board, with the sector falling 4.13% throughout the day, Orchid Science and Technology, Northern Copper, etc., and many non-ferrous metal ETFs fell by more than 4.5%.

However, since the end of February this year, the performance of precious metals represented by gold has been "unbeatable" and has repeatedly reached new highs. Titanium Media APP noticed that COMEX gold reached an intraday high of $2371.99 per ounce on April 15. On April 15, the domestic gold price of AU9999 on the Shanghai Gold Exchange opened at 567.3 yuan/gram, and the price of pure gold jewelry in many gold stores on the market has exceeded 700 yuan/gram. The recycling price of gold bars has exceeded 550 yuan/gram, while the recycling price of some jewelry has exceeded 600 yuan/gram. In this context, investors' attention to gold continues to increase, and funds are pouring into gold ETFs and gold stock ETFs.

So, what is the logic of the recent continuous rise in gold prices? How do you view the differences between institutions on the future trend of gold prices? What are the main risks that gold investment varieties may face at present, and how will the market perform in the future?

While the price of gold continues to rise, the price of non-ferrous commodities that also have certain financial attributes has also risen recently. According to the data, as of April 19, the CITIC non-ferrous metals industry index has risen by 18.71% since the beginning of the year, and the increase in the last three months has been as high as 26%. Affected by the strength of the non-ferrous metal sector, the performance of non-ferrous metal ETFs has also risen accordingly this year. Since the start of the market (February 6 to April 12), the CSI Nonferrous Metals Index, which is tracked by the leading non-ferrous metals ETF (159876), has risen by 42.21% in the market, significantly outperforming the Shanghai Index (11.74%) by 30 percentage points, and also surpassing the ChiNext Index (12.82%) and the Shenzhen Component Index (15.86%).

What is the logic of this round of strong market in the non-ferrous sector? How long can this round of cyclical stock market last? A new round of commodity bull market has come? How can investors participate in the current hot gold and non-ferrous markets?

In this issue of "Titanium Bull, Stock Market!", the host is He Junni, director of Titanium Media International Think Tank, Wang Xiang, manager of Bosera Gold ETF and Non-ferrous Metals Theme Index Fund, Ye Ruzhen, co-chief analyst of Changjiang Securities Metal Group, and @望京博格 of the fund, together with the fund V , together with investors to deeply analyze the logic and trend of this round of gold and non-ferrous bull market, and explain in detail how investors can reasonably deploy investment opportunities in gold and cyclical sectors.

1. The Fed's expectation of interest rate cuts and the intensification of geopolitical conflicts are the main logic of this round of gold rally

Why did the new gold market start at the end of February this year?

Wang Xiang, fund manager of Bosera Gold ETF, said that gold still has a big opportunity when he was a guest on the program "Titanium Bull, Stock Market!" in September last year. For this round of gold market since the end of February this year, he said that from the fourth quarter of last year to the end of February this year, gold has maintained a moderate upward trend, and at the end of February and early March, the core personal consumption expenditures (PCE) data in the United States in February were in line with expectations, and the market is more fully expected for the subsequent soft landing of the U.S. economy and interest rate cuts in June. This is the main logic of the explosion of the gold market at the end of February.

On the other hand, on the occasion of the one-year anniversary of the crisis of small and medium-sized banks in the United States in March last year, the New York Community Bank announced a debt risk that tracks the amount of loans, which caused a certain amount of anxiety in the market. In addition, the Fed's BTFP tool for small and medium-sized banks expired on March 11 last year, and the market also had a certain amount of panic, so the logic of the Fed's interest rate cut expectations appeared to be rushed. In the first week of early March, the net long of the Comex fund doubled in a week, from about 57,000 to 110,000.

These are the main reasons for gold's rally in the first half of March. Since the second half of March, the trading logic of gold has been more abundant, especially the intensification of geopolitical conflicts in some regions, such as the sudden geopolitical conflict in the Middle East, the terrorist attack in the concert hall in the suburbs of Russia at the end of March, and the subsequent increase in Russia's air raids on Ukraine, as well as the Palestinian-Israeli conflict in early April, and Israel's air strikes on the Iranian and Syrian embassies, all of which have stimulated the further release of the commodity market with geopolitical safe-haven attributes including oil and gold in the short term.

He said that in general, the current round of gold rally is the result of a relay of multiple factors. The first half is a deduction of the medium- and long-term logic, which is based on the logic of the Fed's interest rate cut, and the market has more sufficient expectations for monetary easing and a soft landing in the United States. The second half is a relatively short-term factor, such as geopolitics, the Middle East has a certain geopolitical conflict, and unexpected factors include the terrorist attack on Russia.

He further pointed out that the recent increase in gold ETFs is more obvious, and from the perspective of the historical volatility of the market and the phased changes in holdings, there is indeed a certain overbought situation in the short term. However, the current overall market trading sentiment is still very full, coupled with the long-term trading logic of gold, including global de-dollarization, the trend of continued global central bank buying has not changed.

Therefore, he believes that the general direction of the overall upward trend of gold in 2024 has not changed. Gold's upward path and rhythm may fluctuate due to short-term geopolitical events and some unexpected events. However, the general direction will still maintain an upward trend.

Ye Ruzhen, co-chief analyst of the metal group of Changjiang Securities, said in the program "Titanium Bull, Stock Market!" in May last year that under the combined influence of the expectation of a recession in the United States and global de-dollarization, the gold price center is expected to achieve a large rise. In this episode, Ye Ruzhen believes that the expected transaction of interest rate cuts in 2024 is still the core clue of gold. From the trend point of view, we have always defined the short-term trading of gold as three stages: slowing down the rate of interest rate hikes, trading in anticipation of interest rate cuts, and relaying crisis transactions on the basis of interest rate cuts; The second stage, interest rate cut expectation trading, is the most explosive stage on the equity side. At present, it is still in the early stage, and the cost performance of equity allocation is still outstanding. Before the interest rate cut is still maintained, short-term fluctuations are an opportunity to increase the allocation of precious metals.

He further noted that the starting point of this great gold bull market began in the second half of 2022. According to the definition of the above-mentioned cycle trading, the complete gold market in this round can be divided into three stages around the US recession. The first stage is from November 2022 to March and April 2023, when the rate of interest rate hikes slows down and gold shows the first wave of gains. In November 2022, when the intensity of the 75BP interest rate hike slowed down to 50BP, it continued until around March and April 2023, superimposed on the outbreak of the Silicon Valley Bank incident, and the first wave of gold market appeared.

The second stage is from November 2023 to the present, after the Federal Reserve's interest rate meeting in October last year, there are expectations for interest rate cuts in 2024 for the first time.

The market is now in the second phase - the expectation of a rate cut is starting to materialize. This round of gold's upward cycle is significantly different from previous ones, and this round of interest rate cut cycle has strong expectations for a soft landing for the US economy. Recently, the non-ferrous sector, copper-based resource products have also started, and even followed gold to show a strong upward trend, which is very different from the situation of the previous US economic recession cycle. In the past, during the recession of the main upward wave trading of gold, the non-ferrous system was weak in the context of the overall U.S. economic downturn.

And now in this state of reflation or stagflation, the Federal Reserve said at its March interest rate meeting that it has a high tolerance for short-term inflation before the US election is decided. For gold, the inflation factor is on the upside and the interest rate factor is flat. Under the regular interest rate cut cycle trading, gold is mainly based on interest rate logic. In the context of this soft landing and reflation, the inflation factor has bypassed the interest rate factor to a certain extent, and the short-term support for gold prices has remained stronger. Combined with a combination of trending factors, including short-term geopolitical factors and a further decline in real interest rates amid reflation expectations, gold prices will continue to be bullish.

He concluded that in the large market structure, in the context of the inflection point of the benchmark interest rate, gold is currently in the second wave of the main rise. Judging by the small detail of the monthly level trade, reflation has led to a flattening of the short-term Fed statement. However, against the backdrop of rising inflation, real interest rates have weakened to a certain extent, which has further pushed up gold prices.

2. Will global central banks continue to increase their holdings of gold as a core variable for gold prices?

Global central bank demand for gold has become an important factor in the pivot of gold prices in recent years. Data released by the People's Bank of China on April 7 showed that gold reserves were 72.74 million ounces at the end of March and 72.58 million ounces at the end of February. Since November 2022, the central bank has increased its holdings of gold reserves for the 17th consecutive month, adding a total of 10.1 million ounces of gold, equivalent to buying 18t in a month. According to the World Gold Council, global central banks will buy more than 1,000 tonnes of gold in 2022 and 2023, which is becoming an important part of gold demand, with emerging market countries being the main buyers.

There is a view that the recent rally can not be completely used in the traditional macro analysis framework, the direction of the current round of gold price rise and macro fundamentals are roughly the same, but the magnitude significantly exceeds the range of macro variables, the underlying logic of gold pricing has changed. In the new pricing system, the behavior of global central banks buying gold is the key, behind which is the embodiment of the demand for decentralization and geopolitical safe-haven. A new mechanism for pricing gold, with central bank purchases as the core variable, is taking root.

Why is the price of gold detached from fundamentals, has the underlying pricing logic changed, and has central bank gold purchases become a decisive force?

Wang Xiang pointed out that gold, as an investment variety with low demand elasticity, has a relatively balanced overall supply and demand. In the past two years, the overall price of gold purchased by global central banks in 2022 was about 1,135t, and in 2023 they bought 1,085t, an average of 1,100t a year, more than double the price of a decade ago (400-500t per year), and already account for nearly a quarter of the total global gold demand (which fluctuates between 4,500 and 4,800t per year). The stability of central bank gold purchases is higher than that of individual investors and institutional investors, and the sustainability will be stronger. Therefore, he argues that global central bank gold purchases have become an important marginal force in determining the direction of gold prices, but this pricing factor is difficult to quantify.

He further pointed out that the main driving factors behind the central bank's gold purchases are the Russia-Ukraine conflict since 2022, the geopolitical risks caused by the freezing of Russia's overseas assets, and the rapid expansion of the US Treasury last year after removing the debt ceiling, which brought a credit shock to the dollar system. Behind the global central bank gold purchase behavior is the concentrated embodiment of the demand for "decentralization" and geopolitical hedging. Central bank purchases not only reflect the recognition of gold's safe-haven attributes, but also show concerns about the stability of the traditional monetary system as the Fed's balance sheet continues to expand.

However, he believes that the central bank's purchase of gold does not change the logical framework of the real interest rate that determines the price of gold, but it does change the elasticity coefficient of the gold price. From the second half of 2022, if we look at the correlation between real interest rates and gold prices alone, the negative correlation has become less obvious, but has become a positive correlation in stages. So a lot of people think it's invalid. However, in fact, if the specific time is split, it will be found that from the second half of 2022 onwards, every actual profit inflectional point can still correspond to the inflection point of short-term price fluctuations of gold, which is valid on at least 80% of the samples. Therefore, the real interest rate framework of gold prices has not changed fundamentally, what has changed is the elasticity coefficient of gold prices, and when the real interest rate is downward, the upward elasticity coefficient of gold prices is twice that of the elasticity coefficient of the downward period.

The main reason behind this is the impact of central bank gold purchases. In addition, even after 17 months of continuous increase in holdings, the total amount of gold in China's foreign exchange reserves is still at a very low level, even after 17 consecutive months of holdings. If the benchmark is 69% in the United States and 70% in Germany, there is still considerable room for the PBOC to increase its holdings of gold. While it is likely that it will not remain at 1,100t or higher in the future, the impact of central bank purchases on gold prices will remain an important marginal driver for the next two years or even longer.

Ye Ruzhen agrees with Wang Xiang's view. He pointed out that from a specific observation, the monthly increase in gold prices is not very correlated with the amount of gold purchased by the central bank in that month. The logic of the rise in gold prices is not entirely based on supply and demand, and it does not mean that the central bank has bought too much this month, so gold prices will cash in on better gains this month. The rhythm of gold's rise and the pace of interest rates are still a strong negative correlation, but the amplitude and elasticity are increasing significantly.

He reminded that if you follow the clues of the central bank to buy gold, you need to be cautious. For example, the central bank's monthly purchase volume was about 20 tons last year, but in the first three months of this year, the monthly purchase volume dropped to 10 tons. There is also a certain cyclical nature in the allocation of gold purchases by the central bank, and after the gold price rises, it will also be readjusted according to the overall profit and loss ratio.

Therefore, he believes that the central bank's driving factor for gold purchases is the icing on the cake for the rise in gold prices. In the take-profit strategy of this round of gold market, it may be more optimistic because of this. The more effective timing framework and benchmark for the gold market is still the logic of real interest rates.

Third, in the context of reflation, the correction of gold will not be too large, and it can be increased on dips

With the recent rise in gold prices, some media reported that the Chinese aunt who bought gold 11 years ago has finally unbundled, and many gold investors have begun to sell their holdings of various gold investment products to cash in on their profits. At the same time, after a sustained sharp rise, coupled with strong reflation data in the United States, the Federal Reserve lowered its expectations for interest rate cuts, and gold has also recently seen a high volatility trend.

Gold has been soaring recently, and investors have expressed a bit of a "fear of heights". Is there a possibility of a correction in the short term? From an investor's perspective, has gold reached a crazy moment?

Wang Xiang said that at present, we do see some gold overbought indicators, such as some gold stock ETFs have a 30% premium, and gold ETFs have also seen a 5% increase in a week. From the perspective of overseas holdings, the current North American gold ETF has not yet relayed to keep up, and the net long of Comix is currently at the highest level in the past three years, near the 75th percentile of the highest level in history.

On the other hand, from the perspective of the logic of the rise in gold prices in the above analysis, the logic of the increase in the first half of the period is determined by the real interest rate and monetary easing expectations, which is relatively stable, and now in the second half, the geopolitical conflict factors are gradually increasing, and the stability of the rise in gold prices is declining. Historically, gold has been prone to some impulsive rises, which is also inseparable from the impulsive sentiment in the event of geopolitical conflicts.

He further pointed out that the follow-up game of some overseas geopolitical conflicts in the near future, it is difficult for ordinary people, including industry analysts, to see clearly, if from the perspective of short-term games or speculation, the current risk of gold is indeed rising. However, he also said that if investors currently have a position in gold, they can still continue to hold it.

In addition, he pointed out that gold pricing is affected by a variety of factors, the main game in the early market is the expected landing of monetary easing, but the recent global reflation has risen, if all kinds of resource games, supply and demand are more and more tense, in fact, the probability of gold follow-up is still higher.

However, he believes that the Fed does not have much room for upward tightening. Because the current interest payment of US Treasury bonds as a proportion of GDP has exceeded 4%, from the perspective of economic stability, the stability of interest payments will be harmed to a certain extent. In addition, this year, the US economy is more constrained by the high interest rate environment than last year, and although interest rates are rising last year, ordinary Americans, financial institutions, and enterprises have a large amount of cash in their hands. Because after the monetary and fiscal easing in 2020, assets are greater than liabilities, and assets bring income in the process of rising interest rates, as long as there is no refinancing replacement on the liability side, the marginal increase in interest rates will not cause fundamental damage to it.

But now, whether it is from the Fed's reverse repo balance, the Treasury's general deposit account balance, or the excess savings of US residents, they are all in the process of being consumed, and when these are consumed, the drag on the US economy from the high interest rate environment will gradually become obvious. So he thinks that even if there is a big rise in inflation, the Fed may not have much room to tighten. In this case, the real interest rate on gold could open a downward bottleneck. Of course, this process needs to be switched from the current trading logic of monetary easing. In this switching process, some adjustments may be made to the current main pricing, which may be a better opportunity for investors to intervene.

Ye Ruzhen believes that before the US election, the overall expectation of the first interest rate cut is still relatively strong, although it has been delayed and the probability has decreased. At the same time, with the pre-emption of reflation, the crack in real interest rates, that is, inflation at the same interest rate, rises, and the return on investment declines. Therefore, in the short term, before the U.S. election, the external environment window for gold is relatively friendly, and gold is basically a volatile upward pattern.

He further pointed out that in the process of reflation, the overall adjustment of gold is relatively limited, whether it is RMB denominated gold or US dollar gold, the downward adjustment space may be within 5%, basically US dollar gold to about 2250, is a strong support. RMB 530 or so is also a relatively strong support. This year, it will continue to increase its allocation on dips. Gold is a good deal as a long-term allocation. For individual investors, they can wait for a pullback to buy, but the pullback may not be too large.

Mr. Wangjing Boge, the V@ of the fund, said that the current enthusiasm of the public to buy gold has shown some signs of frenzy. He pointed out that historically, once the dollar's status is hit, the price of gold rises immediately. For example, the earliest was the Bretton Woods system, then the oil crisis, then the financial crisis, and now the great power game. He believes that if the follow-up of the Sino-US game lasts for a long time, then it may be difficult for gold to fall sharply.

But for the current position, he said that as an individual investor, he may not chase the rise, or should buy when it is cheap, the current price is a bit unacceptable, or hope to wait until there is a certain pullback before buying. If you already hold some gold investments, you don't need to sell them, you can continue to hold them.

In addition, he reminded investors not to buy gold jewelry when buying gold, because the gold price of jewelry is about 100 yuan to 200 yuan more expensive than the recycling price. Ordinary investors can buy gold ETFs. He made an analogy, we should buy noodles, never buy bread. Gold jewelry is bread, gold is noodles, to maintain and increase the value, just buy noodles, don't buy bread.

Fourth, gold stocks have the logic of expanding production and valuation, which is more elastic and cost-effective or higher than commodities

Compared with the recent gold market, the performance of gold stocks is more eye-catching. Although there has been a certain pullback in recent days, the gold stock ETF (517520), known as the gold price amplifier, has attracted more than 500 million gold in the past 20 days, and the scale has been close to 800 million, a record high, the largest of its kind. So, is there a risk of adjustment in gold stocks at present, and is there still a relatively large upside in the future?

Wang Xiang said that gold stocks are more resilient. The annualized volatility of gold may be around 14%, while the annualized volatility of equities is as high as 25%. There is a big gap between the two. In addition, the correlation between domestic gold stocks and the overall equity market is about 60%, which is higher than the correlation with gold (about 45%). Overseas gold mining stocks are the opposite, and the correlation with gold itself is higher.

He reminded investors to judge based on their own risk appetite and risk tolerance. Also be careful not to buy varieties with high premiums. The high premium is the result of short-term sentiment trading, which in some way means that the liquidity of the underlying is not very good and it is not fully priced. It can be seen that many fund companies have continuously issued risk warnings in the process of this round of high premiums, and investors need to pay attention to this.

Ye Ruzhen said that from the perspective of equity analysis, the current cost performance of gold stocks is higher than that of commodities. The first core factor is that the earnings growth of gold stocks not only comes from the rise in gold prices, but also from the increase in volume. At the current node, if you have doubts about the gold price itself, it is recommended to buy individual stocks, and the growth will be better.

The growth in gold equity earnings is not just from prices, and the production cycle of all gold companies in this cycle is in full swing on a large scale. This is completely different from the last golden cycle. From the start of the fourth quarter of 2018 to the end of 2020, the price of gold also experienced a very turbulent market, but at the industrial level, this batch of gold stocks did not have much production growth and capacity growth. Because going back to 2012 to 2018, it was a six-year gold bear market, and the price of gold was around $1,200 for a long time, and these gold stock companies basically had very thin profits. So when the bull market from 2018 to 2020 just started, the first thing these companies did after making money was to pay off their debts and reduce the pressure of past debt.

However, 3-4 years from the start of the current round of gold market (the second half of 2022), even when gold was the most difficult, in the context of the strong interest rate hike in the Russia-Ukraine conflict in 2022, the minimum adjustment of gold prices was only $1,700, and there was no new low. Against this backdrop, these gold-equity companies have seen a significant uptick in earnings over the past 4-5 years, with almost all companies starting a new 5-10 year capex cycle around 2021. The growth of many companies in the next 2-3 years is more than doubled, which means that even if the gold price does not rise in this position, holding these stocks in 2-3 years can enjoy the growth of corporate earnings brought by production growth. If the rise in gold prices is superimposed, the elasticity of the market value of listed companies brought about by the rise in overall volume and price is far greater than that of gold itself.

He further pointed out that for this round of gold stocks, first, the opening of the industrial capital cycle is a more important dimension than price. Many companies have at least 20%-50% growth, and companies with strong operating performance may nearly double the volume. These volume increases have nothing to do with the gold price itself, but are the support of the company's market capitalization and profitability in the future. Therefore, at the current node, if investors have doubts about the subsequent trend of gold prices themselves, or do not have a clear view of the upside, they recommend buying individual stocks, which may have better growth.

Second, from a valuation perspective, before March, the market was not optimistic about the gold price, and it could even be said that it was very pessimistic. It can be seen that when gold first broke through in early March, gold stocks and gold prices diverged, and gold prices kept rising, while gold stocks represented by Shandong Gold as the core were falling. The reason behind this is that when a cyclical variety just hits a new high, all investors adjust its profit and loss ratio downward. Because the height of the rise is difficult to predict, but if you look at the historical retracement, the past decade or so of the cycle looks at gold at $1,700 in 2022, and in 2018 and 2019, the price of gold fell to $1,300-1,400. So the market's reaction is that the more gold rises, the more gold stocks are sold.

Before April, from the valuation side of gold stocks, because of the uncertainty of the upside of gold prices, the market only gave the performance valuation of the current year, and did not dare to give even the growth performance valuation of the next year. However, after the gold price continued to hit new highs in March, the market's discussion and confidence in gold have increased significantly in the past month, which has led to the equity market's attitude towards gold stocks from being very cautious and killing valuations to slowly turning to a new recognition of this variety. To a certain extent, the market will gradually value the forward growth of gold stocks.

Therefore, from the perspective of valuation, he believes that in addition to the rise in gold prices, gold stocks also have two parts of elasticity, the first part is the elasticity of capital expenditure and growth, and the second part is that after the equity market turns from cautious to optimistic about this variety, there will be a certain amount of growth based on the next 1-2 years on the valuation side, which will be reflected in the current valuation level in a timely manner. From a half-year perspective, the price-performance ratio of gold stocks is stronger than that of commodities.

Fund V@ Wangjing Bog agrees with Ye Ruzhen. Gold stocks not only enjoy the benefits of rising gold prices, but also enjoy the growth space of gold companies to expand production. In addition, the current equity market sentiment is relatively sluggish, and the valuation of gold-stock companies is also low, and the valuation will also rise after the market sentiment picks up in the future. He said that the safety line of gold stocks may be higher than the price of gold, and if there is a good time in the future, investors can allocate some gold stocks or gold stock funds. He also reminded that for investors who prefer to invest in a stable manner, gold ETFs may be more suitable, and the investment logic is simple and clear. In addition, if you invest in on-exchange gold stock ETFs, you should be optimistic about the net value and price, and don't follow the trend brainlessly.

Fifth, copper, aluminum and other offensive non-ferrous varieties are on the left side of the cycle, and the cost performance may be higher than that of gold

It is worth noting that with the continuous rise in gold prices, the non-ferrous metal sector has recently entered a state of "soaring". Wind data shows that as of April 19, the CITIC non-ferrous metals industry index has risen 18.71% since the beginning of the year, and has risen as much as 26% in the last three months. Affected by the strength of the non-ferrous metal sector, the performance of non-ferrous metal ETFs has also risen accordingly this year. As of April 19, all 22 non-ferrous metal ETFs have achieved positive returns this year.

The performance of individual stocks in the non-ferrous sector is also very good. Wind data shows that as of April 19, 124 CITIC non-ferrous metal constituent stocks, in the past three months, 78 stock prices have risen positively, among them, North Copper (000737.SZ) rose as much as 100%, ranking first, China Molybdenum (603993. SH), Zhongrun Resources (000506. SZ) ranked second and third in the last three months, with increases of 80.92% and 61.73% respectively.

The non-ferrous sector performed strongly in this round, especially upstream resources such as copper and aluminum. What is the logic behind the strong rally?

Wang Xiang said that the interpretation of non-ferrous metals, like gold, is also achieved in multiple stages and steps. At the end of last year, some industrial metals such as copper and aluminum saw a bottom lift. At that time, it was in the context of low inventory in the past few years, and all intermediate links were basically cleared. Once the margin improves in the future, the corresponding metal price will be more elastic.

The performance of copper at the beginning of this year was similar, and it can be seen that there was a relatively obvious shortage of copper mines, and the processing cost of copper also decreased significantly, which also boosted copper prices in February and March. Later, in the context of the resonance of the PMI in China and the United States, a large economic recovery cycle and inventory replenishment cycle were laid. The U.S. replenishment cycle is clearer, with some midstream and upstream sectors already restocking at the end of last year, and recent data from the midstream sector has also validated the trend. However, the current reflation logic and low inventory environment may make the market more hype about supply factors, including that there is indeed a significant gap between supply and demand of bauxite.

However, he further pointed out that the current situation of non-ferrous metal price increases will have a reflexive impact on the inflation environment in the United States, including the Federal Reserve's monetary policy. There is still some uncertainty about the pace of the Fed's subsequent phased delay in monetary easing. The supply and demand relationship of many domestic industrial products is more about speculating on the supply side. On the demand side, it may be necessary to look more at the domestic real estate market, or the progress of the debt process, and wait for the future signs of economic recovery to be clearer. Therefore, he believes that in the short term, the non-ferrous sector market is more of a repair of the previous pessimistic sentiment. More economic data is needed to validate it in the future.

There is a market view that a new round of commodity bull market has begun. Ye Ruzhen also pointed out in his latest report that copper and aluminum started the first year of price increases. He said in the program that the past two years have been a period of pressure for copper, aluminum and commodities. In particular, after the manufacturing industries in the United States and China peaked in 2021, 2022 to 2023 is a very big stress test. In this context, including copper and aluminum, the supply of non-ferrous varieties is slowly becoming tighter, and the capital expenditure cycle is becoming more and more tight. This also supports the stability of these non-ferrous varieties on a higher price platform.

The recent market agitation can be understood as the market is anticipating a soft landing in the United States, that is, when the United States does start to cut interest rates, the entire real estate and manufacturing markets will quickly reverse to the upside. So for most of the varieties of non-ferrous colors, in the past two years the most difficult have passed many supply factors, including the demand brought by the new energy industry, and withstood the stress test in a relatively high position.

Then, looking back 2-3 years at this node, the trend of these offensive metals represented by non-ferrous metals such as copper is better than the cyclical position of gold. Copper and aluminum are at the beginning of the start on the left side of the cycle, and gold is already on the right side of the bull market. From the perspective of the annual level, this round of offensive metals represented by copper, which has a stronger new energy logic, may be more cost-effective than gold. From the perspective of profit and loss ratio, copper and aluminum may be ranked higher than gold.

Fund V@ Wangjing Boge believes that non-ferrous metals are now in the initial stage, like copper, other metals, at least have not broken through the record high, and are still in a relatively low position. However, the fluctuation of non-ferrous varieties is large, and there are many factors that need to be paid attention to, including inventory and price, which are difficult to grasp, so it is recommended that individual investors still choose non-ferrous funds to invest. He reminded everyone that this variety has risen rapidly, like from 2006 to 2007, there are many non-ferrous stocks that have risen more than ten times, but the decline is also very large when it falls, and investors should pay special attention to the risk.

6. The allocation ratio of gold and non-ferrous metals is suitable for about 10%, and ETF products are more suitable for ordinary investors

For investors, how should they invest in non-ferrous resources, and what is the appropriate allocation ratio?

Wang Xiang said that for ordinary investors, it is a relatively simpler and more worry-free investment method to ignore the differences between individual alpha and ignore the differences. Non-ferrous metal ETF products can provide very good allocation value. For example, non-ferrous metal mining products, its industrial metals, precious metals and energy metals, the distribution is relatively balanced. Investors don't need to guess the marginal rhythm changes of a certain chain or link, but more about sharing the process of overall asset pricing.

Wang Xiang said that in addition to the trend logic of phased upward trend in gold investment, he also has the role of smoothing fluctuations and hedging in the long-term asset portfolio. Asset allocation is not only based on yield, but also on volatility. From a quantitative point of view, gold accounts for about 12% of the traditional stock and bond portfolio. If the optimization goal is the maximum drawdown, it is about 7% with the maximum drawdown and the minimum. Overall, it is also close to a neutral configuration of 10%. Like some overseas long-term funds, including some insurance institutions and overseas sovereign wealth funds, the proportion of their allocation of gold is also about 10%.

He further pointed out that in a year like this year, where the logic is very smooth and the trend is relatively strong, it can also be appropriately increased, and it is no problem to increase it to 15%. In some annual meetings where the logic is not very clear and the downward pressure is relatively large, it is appropriate to reduce the allocation. In general, gold is an asset that can be allocated for a long time, and it is a good choice to allocate around 10%.

In addition, he added, while the current position of non-ferrous metals on the cycle may be safer. However, the volatility of listed companies themselves is very high, and they are also susceptible to some factors such as market investor sentiment. Therefore, from the perspective of long-term investment, diversification is a good choice.

Fund V@ Wangjing Berger believes that gold and non-ferrous metals can be controlled within 10%, together with other tracks, to form a diversified investment, not all in one track, and you can insist on regular investment.

Ye Ruzhen said that in this year's annual industry allocation, the resource sector has a certain degree of revaluation logic, which will bring strong help to the relative income of the entire non-ferrous sector. Whether it is from the perspective of the industrial cycle or the global PMI cycle, the risk release in the past two years has been relatively sufficient. Looking forward in this position, non-ferrous resources used to be determined by some structural factors on the supply side itself, but in the next 1-2 years, overseas is expected to launch a short cycle and China resonance, and the rhythm of resources will conform to the power of this cycle. On the whole, in the next 1-2 years, the market confidence that non-ferrous metals and metals will continue to dominate may be stronger.

For more details, please refer to the 25th issue of "Titanium Bull, Stock Market".

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