On April 15, the A-share indices saw a bounce-back; however, gold stocks plunged dramatically from their recent highsThe Gold and Jewelry Index recorded a significant decline of 5.12%, while several stocks including Lai Shen Tong Ling and Zhong Run Resources hit their daily limit downOther notable stocks such as Chifeng Jilong Gold Mining, Sichuan Gold, Shandong Gold, and Yintai Gold also faced declinesThe futures market reflected this trend as Shanghai gold futures, after surging last Friday, experienced a retracement in trading volume and a decrease in positions, ultimately closing up 0.28% on Monday.

It is important to note that prior to this downturn, both gold stocks and gold futures had demonstrated remarkable performances

For instance, gold-themed ETFs ranked at the top in the public fund performance list this year, while commodity-based gold funds recorded an average increase of over 17% year-to-date.

The underlying reasons for this adjustment can be traced back to a combination of geopolitical factors that have continually driven gold prices up, significantly boosting the performance of gold stocks and attracting abundant capital in pursuit of these assets.

However, some analysts have cautioned that short-term fluctuations in gold prices may occur, suggesting that the recent rally might have exhausted some of the potential for upward movement in the second half of the year.

A significant drop was observed in the Gold and Jewelry Index after a sequence of consecutive gains.

On the morning of April 15, the index briefly dipped by 7% before closing with a 5.12% drop, with many individual stocks reaching their daily limit.

Previously, the stock Lai Shen Tong Ling boasted a remarkable nine consecutive increases, while Zhong Run Resources had five increases in just seven days

Additionally, Zijin Mining showed a year-to-date rise of over 48%, culminating in a Gold and Jewelry Index that had enjoyed ten consecutive increases, once exceeding a 20% rise.

The CSI Gold Industry Stock Index, which selects stocks from large market cap companies involved in gold mining, refining, and sales in the mainland and Hong Kong markets, has shown a year-to-date increase of over 30%.

Two gold stock ETFs tracking the above index have also ranked at the forefront of public fund performance this year, with actively managed funds holding substantial positions in gold-related sectors achieving top ranks among similar funds.

In addition, commodity-based gold funds have attracted significant net inflows, setting new records in scale

For example, the Huaan Gold ETF, Bosera Gold ETF, and E Fond Gold ETF reached sizes of 21.236 billion, 12.271 billion, and 8.876 billion yuan respectively this year, with net fund inflows of 4.566 billion, 3.504 billion, and 2.96 billion yuan during the same period.

Multiple factors have driven the bullish trend in gold.

Gold, as a crucial hedge asset, has remarkably exhibited independent performance, which can only be attributed to robust underlying logic.

According to Guojin Securities, the recent surge in gold prices is largely propelled by central bank purchases and a rising demand from individual investors in Asia

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The intraday analysis of gold prices reveals that since February 14, significant spikes frequently occurred during European trading hoursFurthermore, the total exports of gold from Switzerland and the UK reached unprecedented totals of 23.4 billion dollars in January, showcasing a historic high.

In the medium term, the continuation of central bank gold purchases could support gold prices reaching new heightsIt's essential to understand that "de-dollarization" is a complex process involving certain countries decoupling, resulting in a relatively low percentage of gold reserves in these nationsAs U.STreasury prices rebound, the pace of central bank purchases is likely to increase rather than decreaseAdditionally, predictions suggest a viable scenario for interest rate cuts in 2024, with historic trends showing a strong correlation between declining interest rates and gold price increases, reinforcing investment demand.

Gold investment has demonstrated impressive results

ZF, an investment manager at Bosera Fund's Index and Quantitative Investment Department, outlined three major factors driving gold prices: the expectation of the Federal Reserve entering a rate-cutting cycle in 2024, the continuous accumulation of gold by global central banks over the last two years, and the increase in market hedging demand due to rising geopolitical tensionsTogether, these forces have pushed gold prices, with London gold recently exceeding the $2300 per ounce mark.

As gold prices continue to rise, one fund manager, Hualong, pointed out that historically, the price of gold and the dollar have been inversely relatedGiven the high probability of interest rate cuts this year and potential depreciation pressures on the dollar, the current environment presents a favorable investment position for gold due to its high risk-reward ratio

Furthermore, considering the medium to long-term view on inflation resistance, the allocation value of gold becomes increasingly apparent.

Should we expect a retracement or the end of the bullish market?

Amidst the volatility in the A-share market, gold-related assets have thrived, marking themselves as some of the best-performing assetsNevertheless, many investors are questioning the rationality of gold pricing at this junctureHow sustainable are these related assets?

Although gold prices have risen significantly recently, ZF predicts that there is still room for pricing growth

The reasons supporting this outlook include the fact that the Federal Reserve has yet to execute its first rate cut, maintaining existing market expectationsHistorical patterns suggest that gold prices tend to maintain an upward trend within the six months following initial rate cuts, indicating that we might see peaks in prices during the fourth quarter of this yearAdditionally, the continued accumulation of gold by global central banks bolsters this expected trajectory.

However, compared to commodity ETFs tracking gold futures, the gold stock ETFs tracking the A-share gold concept have registered significantly less funding interest.

Data indicates that the gold stock ETFs managed by Yongying Fund and Huaxia Fund have seen net inflows of 592 million yuan and 139 million yuan respectively this year, demonstrating a markedly lower level of funding interest compared to commodity-based gold ETFs.

This disparity may greatly relate to the asset attributes tracked by the ETFs

The gold stock ETFs reflect the dynamics of A-share assets, whose price fluctuations are influenced not only by the underlying performance but also by various uncertainties including market sentiment and expectationsThus, their volatility significantly exceeds that of commodity ETFs tracking gold futures.

According to ZF, for average investors, gold ETFs and their connecting funds that track the price of gold provide a convenient means to indirectly own gold via fund shares, with low transaction fees, avoiding risks of counterfeit products and eliminating the need for additional craftsmanship feesThis also alleviates the hassle of storing physical goldSince these funds do not employ leverage, their volatility remains relatively low.

Regarding the allocation value between commodity-based gold ETFs and gold stock ETFs, Hualong suggests that investors optimistic about gold’s performance and who wish to capture potential equity market gains may opt for gold stock ETFs