Recent developments, including prolonged Middle East conflicts exceeding expectations and hawkish signals from the U.S. Federal Reserve's policy meeting, have shifted market expectations for 2026 monetary policy from interest rate cuts to hikes. This extreme reversal in rate cut expectations, combined with liquidity shocks, has led to a correction in gold prices. However, the long-term investment value and underlying logic for gold and gold-related equities remain largely unchanged. The short-term adjustment may actually enhance the risk-reward profile for investing in these assets.

Looking ahead, if the Strait of Hormuz resumes navigation, it could benefit gold and gold stocks. A weakening inflation outlook would support monetary easing, boosting gold's financial attributes and improving risk appetite in equity markets. Concurrently, the credibility of the U.S. dollar may further deteriorate following recent events, providing long-term support for gold's role as a store of value.

Regarding the possibility of the Fed raising interest rates, pressure from U.S. Treasury interest payments suggests the White House has a clear preference for rate cuts. While inflationary pressures might delay the timing of cuts, a shift to hikes appears unlikely. More notably, weaker-than-expected U.S. non-farm payroll data for February, coupled with higher unemployment and surging oil prices lifting inflation, indicate the U.S. economy may be entering a stagflation cycle. Historically, gold has performed well during such periods. Major financial institutions, including J.P. Morgan, Bank of America, UBS, and Deutsche Bank, now project gold could reach new highs above $6,000.

Third-quarter earnings for gold stocks largely met expectations, with the top ten constituents of the CSI SSE Hong Kong Gold Stock Index maintaining a high growth rate of 62% for the first three quarters of 2025. Annual reports from several gold mining companies also showed sustained strong growth. This performance is driven by rising gold prices and increased production from mining companies. Based on the outlook for gold prices in 2026 and expansion guidance from domestic mining firms, this trend is expected to continue. As of March 20, using a gold price of $4,600 per ounce, the average forward P/E ratio for major gold miners for 2026 is only 10-16x, compared to a historical average of around 20x, indicating significant room for valuation re-rating. Overall, gold stocks are well-positioned for a potential double boost from both earnings growth and valuation expansion.

Note: Valuation data for gold mining companies is sourced from Wind, as of March 20, 2026. Past index performance is not indicative of future results and does not guarantee fund performance.

The CSI SSE Hong Kong Gold Industry Stock Index is compiled and calculated by China Securities Index Co., Ltd. All rights reserved.

Views are for reference only and do not constitute investment advice.

Risk Warning: Funds carry risks; investors should exercise caution.