Summary of Key Points
Recently, gold prices have seen a strong rebound, with the London spot price breaking through the $4400, $4500, and $4600 per ounce thresholds in succession, increasing by 5.18% on a weekly basis and achieving three consecutive weeks of gains. COMEX gold futures have also rebounded by more than 16% from their July lows. The mid-year reports of A-share gold mining companies have been impressive, with most showing double-digit increases in both revenue and net profit (three companies even doubling their profits). Gold stocks and ETFs have gained more than 20% in the past month. The underlying factors include high U.S. debt levels, a weakening U.S. dollar, and central banks purchasing gold. Institutions generally expect gold prices to rise in the medium to long term, but they are wary of short-term risks such as the Federal Reserve potentially becoming more hawkish.
1. How sharp has the gold price increase been recently?
Gold prices have risen sharply recently, with the London spot price breaking through three major psychological barriers in just one week, rising from $4400 to above $4600, an increase of 5.18% on a single week, and achieving three consecutive weeks of gains. COMEX gold futures have performed even better, reaching a high of $4690, a rebound of more than 16% from their July low of $4022. Since August, the price has risen by 12% and is currently hovering around $4550, showing strong upward momentum.
2. Why are the performance of gold mining companies so impressive?
This is mainly due to a combination of rising prices and volumes, along with cost leverage:
- Rising gold prices are the key: Gold prices in London have increased by more than 50% year-on-year in the first half of the year, making the gold sold by mining companies more valuable.
- Fixed costs lead to higher profits: The costs of mining gold (such as equipment and labor) are relatively fixed. Therefore, for every increase in gold prices, the profit margin almost entirely increases. As a result, the average net profit growth rate of the six companies that have released their mid-year reports was 73%, exceeding the rate of gold price increases.
- Increasing production: For example, Zijin Mining produced 46.7 tons of gold in the first half of the year, a year-on-year increase of 13.4%. A simultaneous increase in both price and volume naturally leads to better performance.
- Some exceptions deserve attention: Hengbang Co., Ltd.'s net profit doubled due to the sale of its stake in another company (earning $298 million in non-recurring income), but its core business's net profit after deducting non-recurring items decreased by 9%. Such growth is not sustainable.
3. Why do gold stocks outperform gold prices more significantly?
This is mainly due to the "profit amplification effect":
- Cost leverage: Suppose the mining cost is $2000 per ounce. If the gold price rises from $4000 to $4600 (an increase of 15%), the profit would increase from $2000 to $2600 (an increase of 30%), essentially doubling.
- Production expansion: If companies also increase their production, their profit growth rate can exceed that of gold price increases. For example, Zhaojin Gold's net profit increased by 407%, and Sichuan Gold's by 107%.
- Valuation recovery: In July, when gold prices fell, the PE ratio of the gold sector dropped to 10.3 times (a historical low). Now, with rising gold prices and better performance, valuations have also increased, leading to higher stock prices than gold prices (ETFs have gained more than 20% in the past month).
4. What is the logic behind the gold price increase?
This is not an accidental phenomenon; it is driven by broader macroeconomic factors:
- U.S. debt burden: The U.S. debt has exceeded $40 trillion, and the Treasury Department is buying back long-term bonds, which is equivalent to injecting money into the market. This weakens the credibility of the U.S. dollar, making gold, as a safe-haven asset, more popular.
- Weakening U.S. dollar and de-dollarization: Many countries around the world are reducing their dependence on the U.S. dollar, and central banks are buying gold in large quantities (38.88 billion dollars in the first quarter of 2026). Gold ETFs are also seeing net inflows (1.5 million ounces in 30 days).
- Breaking traditional patterns: In the past, gold prices were sensitive to the Federal Reserve's interest rate hikes (as higher interest rates reduced the returns on gold). However, even now, despite rising U.S. bond yields, gold prices continue to rise because there is greater concern about the credibility of the U.S. dollar and its debt.
5. What will happen to gold prices and gold stocks in the future?
Institutions are generally optimistic, but there are risks:
- Optimistic forecasts: UBS expects gold prices to reach $5400 by September 2027, Citibank expects $5000-$6000 in the next year, and Deutsche Bank expects $4700-$5100 by the end of the year.
- Supporting factors: The trend of central banks purchasing gold remains unchanged, the U.S. dollar is weak, and debt issues have not been resolved.
- Risks: If the Federal Reserve suddenly raises interest rates (becoming more hawkish), or if oil prices soar (driving inflation and potentially forcing interest rate hikes), the demand for gold may decrease, leading to short-term price volatility.
In summary, gold has a strong "safety cushion" in the medium to long term, but those looking to make quick profits should be cautious of short-term fluctuations.