CITIC Construction Investment: The market is fully priced, and near-term interest rate hikes are expected, and gold is expected to bottom up

The Zhitong Finance App learned that CITIC Construction Investment released a research report saying that the US released the CPI data for August. The overall CPI was in line with expectations, and the core CPI exceeded expectations, but the increase in inflation was mainly due to one-time service disturbances, and the possibility that it would continue to heat up is low. After the data was implemented, the probability of interest rate hikes in September rose to 87%. Expectations of interest rate hikes in the near term basically filled up, triggering favorable trading, and gold fell first and then rose. Looking forward to the future, the market has fully set expectations for near-term interest rate hikes. As long as the Federal Reserve does not release a signal of continued interest rate hikes, it is expected to bottom out after the gold gap runs out: if interest rates are raised in September, the relief of short-term interest rate pressure is expected to resonate with gold's credit hedging, supporting a recovery in gold prices.

CITIC Construction Investment's main views are as follows:

Industrial metals: Prices of copper, aluminum, lead, zinc, and tin in LME this week changed to -1.1%, -1.2%, -0.7%, -2.0%, and -3.0%; industrial metal prices are determined by “financial attributes” and “commodity attributes”. Judging from financial attributes, the Federal Reserve has begun a cycle of interest rate cuts; judging from commodity attributes, global copper and aluminum inventories are at a relatively low level. Driven by the new energy industry, copper and aluminum demand growth will improve somewhat.

Gold: The interest rate hike in September is expected to be fully priced, and the price of gold is expected to bottom up

(1) The core CPI for August exceeded expectations, but the upward drive continued to be weak. The US announced the August CPI on Friday. The overall CPI was +0.4% month-on-month (previous value 0.1%) and +3.4% (previous value 3.4%), in line with expectations; core CPI was +0.3% month-on-month (expected 0.2%, previous value 0.2%) and +2.4% (expected 2.4%, previous value 2.5%), which exceeded expectations month-on-month, but declined somewhat year over year. From a structural perspective, the overall CPI rebound was mainly driven by oil prices, in line with market expectations, and has yet to clearly spread to other consumer goods; core CPI exceeded expectations by core services, with core services +0.3% month-on-month. The increase was concentrated on wireless phone services, hotel accommodation, and transportation services. The increase factors were noisy and less sustainable; core commodities were +0.1% month-on-month (0.1% expected, 0.2% previous value), reflecting the basic decline in price transmission effects brought about by tariffs. In summary, although the core CPI for August exceeded expectations, it is unlikely that it will continue to heat up. In the short term, oil prices are still the biggest driving risk for rising inflation.

(2) The probability of interest rate hikes in September rose to 87%, and near-term interest rate hikes are expected to be fully priced. After the CPI data was released, gold first came under downward pressure and then quickly reversed, showing that the market had fully measured the expectations of the Federal Reserve's interest rate hike in September. Core inflation exceeded expectations and then triggered favorable trading. However, interest rates on 10-year US bonds finally leveled off, and interest rates on 2-year US bonds finally returned to the level before the data was released, indicating that the market is not undergoing a new cycle of continuous contraction.

(3) Outlook: The boots may land, and gold is expected to bottom up. Currently, the market has fully measured interest rate hikes 1-2 times during the year. As long as the Fed's interest rate meeting does not release a signal of continued interest rate hikes in September, regardless of whether interest rates are raised or not, it is expected to bottom out: if interest rates are raised, the suppression brought about by expectations of early interest rate hikes is fully realized, compounded by the central bank's continuous purchase of funds and institutional undervaluation, the price of gold is expected to rebound; if interest rates are not raised, short-term interest rate pressure will ease, and may trigger the market to question the Fed's determination to stick to the inflation target. At that time, short-term interest rate pressure will ease and may trigger the market to question the Fed's determination to stick to the inflation target. Gold's long-term credit hedging allocation logic is expected to resonate and support the price of gold It bottomed out and rebounded. On the equity side, gold stocks were affected by security checks, and production for that year fell short of expectations and was fully digested in the interim report. The current stock price is relatively adequate for the price fluctuation of gold prices. If the price of gold bottoms out and rebounds after the shortfall is exhausted, gold stocks are expected to rebound at the same time. In the medium to long term, the core logic of weakening credit in the US dollar driving the upward trend of gold prices has not changed.

Aluminum: aluminum prices fell 1.2%, inventories fell 5.1%

This week, the price of LME aluminum was 3,257 US dollars/ton, down 1.2%; the price of aluminum in the previous period was 24,000 yuan/ton, down 0.2%. As of September 10, China's aluminum inventory was 768,000 tons, down 41,000 tons from last week, or 5.1%.

Supply side: Alumina supply increased slightly this week. An enterprise in Shanxi continued to resume production, and an enterprise in Guangxi once again began maintenance of a roaster. Overall, the supply of alumina continued to increase. As of September 10, China's alumina production capacity was 12.3 million tons, and the starting production capacity was 97 million tons, with an operating rate of 80.63%. The overall start of construction in China's electrolytic aluminum industry continued to remain stable at a high level this week, and electrolytic aluminum companies have yet to cut production, resume production, or start new production capacity.

Demand side: The overall start of construction in China's electrolytic aluminum industry continued to remain stable at a high level this week. Electrolytic aluminum companies have yet to cut production, resume production, or start new production capacity, and changes in alumina demand are limited. This week, the production of aluminum sheet, strip and foil was 210,497 tons, an increase of 140 tons over the previous week. The production of aluminum bars is 28,155 tons, an increase of 35 tons over the previous week.

In terms of cost: sea freight prices continue to rise, and imported ore prices continue to rise; liquid alkali market prices are adjusted flexibly, and market profit performance is poor; there is strong market price appreciation, and thermal coal market prices continue to rise. Taken together, alumina costs continued to rise this week. In terms of alumina, the price trend of alumina produced in China is stable. The average price of alumina produced in China this week was 2676.79 yuan/ton, down 4.04 yuan/ton from the average price of 2680.83 yuan/ton last week, or 0.15%. In terms of pre-baked anodes, prices remained stable this week. In terms of electricity prices, price appreciation is strong in the market, and thermal coal market prices continue to rise; according to the electricity price cycle, coal-fired electricity prices continue to rise. In terms of hydropower, hydropower prices remained stable at a low level during the abundant water season. Overall, the theoretical cost of electrolytic aluminum is expected to increase this week.

Copper: Copper prices fell 1.1%, inventories fell 2.7%

This week, the LME copper price was 14,226 US dollars/ton, down 1.1%; the price of copper in the previous period was 109,900 yuan/ton, up 0.2%. This week, LME+'s copper inventory for the previous period totaled 289,300 tons, down 80,000 tons from last week, or 2.7%.

Supply side: TC continued to decline this week. Currently, it is $200/ton, and there are no signs of stopping the decline so far. In January-June, Chile's copper production fell 6.6% year on year. Major copper production cuts include Spence, El Teniente, and Escondida. Indonesia's production fell 32% year over year, mainly due to the fact that output was still limited after the Grasberg mine had an operating accident. Peru's mine production increased 2% year over year, mainly due to increases in production at Antamina, Las Bambas, and Antapaccay mines, offsetting the decline in Peru Copper, Quellaveco and Marcobre copper production. The increase in Congolese gold production remained flat, with wet mining production increasing by 8%, but the decline in Kamoa mine production offset the increase.

Demand side: Against the backdrop of a record high copper price, the overall trading atmosphere in the market continued to be weak. Downstream fears and wait-and-see sentiment dominated the week. Expectations for the Golden Gu peak season have not been fulfilled. Terminal companies still mainly consume early inventory and immediate procurement. The willingness to take the initiative to replenish stocks is limited, and the resistance of terminals to high copper prices is very obvious. In addition, when combined with Shanghai and copper moving closer to a monthly change, the monthly difference is large. This week, the LME spot lift rate continued to fall. This week, the LME spot upgrade operation range was 32.7-78.3 US dollars/ton, with an average price of 57.02 US dollars/ton, down 81.634 US dollars/ton from last week's average price. The price range for copper in Pingshui in Shanghai is 30-240 yuan/ton, Guangdong is between 200 and 290 yuan/ton, and in Shandong - 130 to 90 yuan/ton. Furthermore, the price difference between Shanghai and Guangzhou is over 200 yuan, and Shanghai copper may be shipped to Guangdong in the near future.

Macro level: Macroscopes are intertwined, expectations of interest rate hikes are increasing, and dynamic tightening pressure on risky assets is increasing. Copper is still dominated by the rapid tightening of non-US copper spot prices. Currently, LME and SHFE maintain low inventories and high rising levels. Pressure to squeeze stocks before delivery is high, and copper prices remain strong. Whether the US tariff policy is implemented this month will dominate subsequent copper price trends, and be wary of changes in tariff expectations.

precious metals

The US dollar index fell 0.1% to 99.1 this week, COMEX gold fell 2.7% to 4,359 US dollars/ounce, COMEX silver fell 4.1% to 64 US dollars/ounce; SHFE gold fell 0.91%, SHFE silver rose 1.0%; SPDR holdings fell 1.8 tons to 1,050 tons. NYMEX palladium fell 8.4% to $1,315 per ounce, NYMEX platinum fell 1.5% to $1801.6 per ounce, and the palladium and platinum spread widened by $92 to -487 US dollars/ounce.

From a macro perspective, the essence of this week's bank situation is a tug-of-war between the Fed's policy expectations and geo-inflation logic. The dynamic game of macro variables dominated the market rhythm throughout the week. At the monetary policy level, there are significant differences between hawks and pigeons within the Federal Reserve, which have become the core cause of market shocks. Earlier, Walsh's hawkish speech boosted expectations of interest rate hikes, then Waller's dovish stated that the market was boosted in the short term, while the non-agricultural data repriced the tightening path, and market interest rate hike expectations fluctuated repeatedly, driving US bond yields and the US dollar index to fluctuate in both directions, directly causing the price of gold and silver to rise and fall repeatedly. The uncertainty of policy expectations was the core cause of market fluctuations this week. Divisions within the Federal Reserve have grown. Walsh emphasized that if inflation fails to fall quickly to the 2% target, Waller believes that if inflationary pressure falls, he can support staying on hold in September. The Beige Book points out that rising energy prices, policy changes, and international conflicts have brought greater uncertainty and further mitigated market concerns about austerity, but failed to change the pricing of interest rate hikes after strong data. The number of initial jobless claims in the US was 206,000, higher than expected, indicating a marginal cooling of the labor market, but the strength of the non-agricultural sector made the market pay more attention to the path of inflation and austerity. The US dollar index fluctuated in the range, eventually falling 0.05% to 98.87, but the collective rise in US bond yields became a key variable in suppressing gold and silver. Furthermore, the escalation of trade frictions between the US and Canada added to global macroeconomic uncertainty.

In terms of geopolitics, global geopolitical risk continues to heat up this week, which is an important auxiliary variable affecting the market. It is also the core disruptor of the market this week. The Middle East geopolitical conflict continued to ferment throughout the week. Multiple dangerous incidents, such as the US-Iran military confrontation in the Strait of Hormuz, the US military's attack on an Iranian oil tanker, and the Houthis attack on Saudi oil facilities in Yemen unfolded one after another, continuing to boost risk aversion around the world. According to conventional logic, the geopolitical crisis will directly boost safe-haven purchases of gold and silver and drive up asset premiums, but there was an obvious change in the geopolitical transmission logic this week. The conflict continued to stimulate higher international oil prices. Brent crude oil approached 100 US dollars/barrel, greatly raising market inflation expectations. High inflationary stickiness further strengthened the Fed's logic of austerity interest rate hikes, boosted actual interest rates on US bonds, continued to suppress the price of interest-free gold and silver assets, and eventually saw a special market where safe-haven benefits were completely hedged by shortfalls in inflation. This is also the core reason why this week's geopolitical risk failed to underpin gold and silver, but instead increased market pressure.