Zhongtai Securities Co.,Ltd. has released a research report indicating that market pricing for the duration of ongoing conflicts remains skewed. On the interest rate front, bond yields across all maturities continue to hit new highs, with the 30-year U.S. Treasury yield surpassing levels seen during the 2008 financial crisis, signaling significant risks in the U.S. bond market. In commodities, the credibility and independence of the Federal Reserve remain under pressure, allowing the financial attributes of various bulk commodities to shine through. While actual market volatility may remain suppressed until the September FOMC meeting, substantial undercurrents are building beneath the surface.
The report does not take a stance on the outcome of next week's meeting. However, to address medium- to long-term uncertainties, it recommends focusing on precious metals, as well as copper and aluminum, which are highly sensitive to Middle East supply disruptions. The key viewpoint is that change factors are accumulating, with the September FOMC meeting serving as the pivotal test.
Accumulating Change Factors
Behind the current market fluctuations, multiple factors of change are gathering. On the geopolitical front, military conflicts between the U.S. and Iran continued on September 5th, with U.S. forces reportedly striking three Iranian oil tankers. In response, Iran attacked several tankers and American vessels. Given the ongoing military actions and the lack of a solution regarding the Strait of Hormuz, regional tensions will likely persist in the short term, and market pricing for the conflict's duration remains inaccurate.
On the interest rate front, the most noteworthy event last week was not the stronger-than-expected employment data, but rather the widespread breakdown across global bond markets. Beyond U.S. Treasuries, government bond yields in Japan, Germany, France, and Italy have surged to two-decade highs, posing the greatest threat to the AI capital expenditure boom. On the commodity front, the Fed's credibility and independence continue to erode, allowing the financial attributes of various bulk commodities to emerge one after another. Although actual market volatility may be suppressed before the September FOMC meeting, there are turbulent undercurrents beneath the surface.
Gold: Pullbacks Present Buying Opportunities
Amidst these dynamics, gold prices have recently corrected following the Jackson Hole symposium, where Fed Chair Warsh emphasized the need to see potential inflation move "clearly and quickly enough" toward the 2% target, reigniting concerns over a September rate hike. Last week, COMEX gold settled at $4,477.2 per ounce, down 0.6% week-over-week, suggesting that gold stocks may follow with a short-term correction. However, the decline in long-term U.S. Treasury yields does not hinge on the FOMC's decisions, but rather on whether global capital is willing to return to U.S. bonds, which is beyond the Fed's control. If the U.S. does not alter its current expansionary fiscal path, structural pressure on long-term bond yields will not dissipate with a few rate cuts or hikes. Investors are advised to consider accumulating positions in the precious metals sector, which serves as a hedge against U.S. dollar credit concerns, during dips.
Copper: U.S. 'Copper Scramble' Resumes, Tight Global Supply Expected
The U.S. Department of Commerce was scheduled to submit its latest copper market assessment report by June 30th, offering recommendations on whether to impose import tariffs on refined copper. Markets anticipate the U.S. may decide to phase in a 15% tariff on refined copper starting in 2027, which could increase to 30% by 2028. Following this expectation, the price spread between COMEX and LME copper has widened since May, with the former reaching a premium of approximately $400 per ton at one point, hitting a peak of $500. On May 22nd alone, over 50,000 tons of copper were withdrawn from LME warehouses and shipped to the U.S., marking the largest single-day withdrawal since 2013. Amidst the ongoing divergence between U.S. and global copper inventories, Zhongtai Securities Co.,Ltd. believes the global copper supply-demand balance will likely remain tight in the medium term and recommends sustained attention to investment opportunities in copper mining companies.
Aluminum: Inventory Drawdown Confirms Supply-Demand Dynamics, High Dividends Bolster Defensive Appeal
Following the renewed U.S.-Iran conflict, uncertainties have not only risen over shipping routes through the Strait of Hormuz but also for aluminum supply from the Middle East, which accounts for 9% of global production. For the global electrolytic aluminum industry, the period of widened overseas supply gaps may extend further, maintaining a tight supply-demand landscape in the medium term. The reduction in overseas aluminum supply is directly reflected in the growth of Chinese aluminum exports in May and the continued drawdown of social inventories to 1.007 million tons during the traditionally weak-demand month of July. Additionally, rising crude oil prices suggest that overseas energy prices may be finding a floor, which could also anchor the price bottom for electrolytic aluminum, an energy-intensive product. Major electrolytic aluminum companies, which have already completed deleveraging since the beginning of the year, currently offer relatively high dividend yields. For institutional investors that must maintain market presence, active positioning in the electrolytic aluminum sector is recommended for its defensive characteristics.
Risk Warnings
Risks include a slowdown in macroeconomic growth, tariff impacts on demand and supply chain stability, fluctuations in raw material prices, changes in Sino-U.S. relations, third-party data inaccuracies, and delayed data updates.