The Federal Reserve releases hawkish signals, gold, silver, and copper all pull back! Non-ferrous sector severely declines, Zijin Mining drops over 6%, non-ferrous ETF Huian (159652) falls over 5%, spot gold stabilizes first, institutions quickly interpret.

On March 19, the A-share market pulled back, as the Federal Reserve signaled a hawkish stance and market expectations for rate cuts cooled down, putting pressure on the non-ferrous metals sector. As of 13:01, the China Universal Gold and Copper ETF (159652), which has higher metal content, fell over 5%, marking a fifth consecutive decline.

All constituent stocks of the China Universal Gold and Copper ETF (159652) index declined across the board, with Luoyang Molybdenum plunging over 7%, Zijin Mining and China Gold dropping more than 6%, Aluminum Corporation of China and Huayou Cobalt down over 5%, and North Rare Earth and Ganfeng Lithium among the top decliners.

【Top Ten Constituents of the China Universal Gold and Copper ETF (159652) Index】

As of 13:04, the constituent stocks are for display purposes only and do not constitute investment advice.

Last night, unexpectedly high wholesale inflation data and Federal Reserve Chair Powell’s cautious comments on inflation prospects dealt a double blow, sharply increasing investor concerns about persistent inflation.

In terms of news, the Federal Reserve kept the federal funds rate target range unchanged at 3.50%-3.75%, marking the second consecutive pause, in line with market expectations. The statement noted that economic activity is expanding at a solid pace; inflation remains elevated to some extent; and economic outlook uncertainties remain high, with geopolitical tensions in the Middle East adding to the uncertainty about the U.S. economy. The dot plot indicates only one rate cut in 2026-2027, reflecting a more cautious approach amid multiple risks.

Powell stated that if inflation shows no progress, the Fed will not cut rates. Most people do not expect rate hikes, but the possibility of further increases has been mentioned.

As a result, international precious metals futures generally closed lower last night, with COMEX gold futures down 3.68% at $4,823.90 per ounce, and COMEX silver futures down 5.63% at $75.42 per ounce. Additionally, most London base metals declined, with LME copper down 3.40%, while LME aluminum slightly rose by 0.59%. However, on March 19, after a sharp decline, London gold stabilized and rebounded, with spot gold surpassing $4,840 per ounce.

【“Buying gold in turbulent times” broken? How to view the long-term value of gold allocation?】

Since March, the escalation of Middle East geopolitical tensions has driven oil prices sharply higher, but the “safe-haven” asset gold has not risen in tandem, seemingly breaking the traditional rule of buying gold during chaos. Some institutions believe that the divergence between gold and oil prices is driven mainly by real interest rates, not just safe-haven demand. Rising oil prices boost inflation expectations, influencing market judgments on Federal Reserve monetary policy, delaying rate cuts, supporting the dollar and U.S. Treasury yields, and putting pressure on gold.

CITIC Securities reviewed past gold prices and gold sector performance after Middle East conflicts, pointing out that the medium-term trend of gold prices after conflicts still depends on the dollar’s credit and liquidity factors. Looking ahead, the continuation of loose liquidity and weakening dollar credit are expected to further push up gold prices.

First, the liquidity easing channel remains unchanged, and “stagflation-like” concerns may serve as a potential catalyst. During periods over the past three years when U.S. employment data underperformed expectations, gold prices tended to accelerate higher. In February 2026, U.S. non-farm payrolls and unemployment rate data again pointed to a risk of weakening employment, which is favorable for market rate cut expectations. It is expected that Jerome Powell, as Fed Chair, will cut rates 1-2 times by 25 basis points throughout the year. The liquidity easing channel will not reverse. Additionally, the delayed impact of tariffs and oil prices on U.S. inflation suggests that real interest rates in major economies in Q1-Q3 may decline successively, supporting ETF accumulation and benefiting gold prices.

Second, the weakening trend of dollar credit is expected to continue, and concerns over U.S. debt may strengthen the premium. According to the World Gold Council, since geopolitical conflicts, the trend of “de-dollarization” has promoted continuous central bank gold purchases, with net gold purchases exceeding 1,000 tons annually from 2022 to 2024, and maintaining a high level of 863 tons in 2025. The core reason is increasing market concerns over U.S. debt issues, external involvement, and internal mechanisms, which are expected to persist. The fiscal constraints of the U.S. debt ceiling have significantly weakened, and the cycle of “raising the ceiling repeatedly and being broken through” may drive gold prices higher. Current estimates suggest a fair value for gold above $5,000 per ounce, and the combined effects of weakening dollar credit, loose liquidity, and safe-haven demand could push gold prices toward $6,000 per ounce this year.

Historically, valuation or stock price percentile advantages have strengthened the upside potential of the gold sector. Meanwhile, the PE valuation of leading companies has fallen to a low of 15-20x, and considering the high synchronization of stock and gold prices in recent years, there is optimism for new highs in gold prices to drive new highs in stock prices. (Source: CITIC Securities, March 19, 2026, “Gold | Review of Gold Prices and Gold Sector After Past Middle East Conflicts”)

【Non-ferrous metals: Inflation exceeding expectations, global Halo trades, escalating geopolitical conflicts, supporting cyclical allocation logic】

Shenwan Hongyuan points out that above-average inflation, global Halo trades, and intensified geopolitical conflicts reinforce the cyclical allocation strategy, shifting industry style from tech growth to cyclical assets.

Macroeconomics: Inflation in Q1 2026 exceeds market expectations, with February PPI year-on-year improving from a low of -3.6% (July 2025) to -0.9%. Historically, during PPI bottoming and recovery phases, cyclically sensitive factors in A-shares and Hong Kong stocks have outperformed: The current cycle’s excess returns for cyclicals are shorter than historical averages. Oil prices, which surged from around $60 per barrel at the end of 2025 to over $100, have only increased about 20% in this cycle, still in an upward trend, with the relative performance of the pricing chain and downstream transmission still in the “first half.”

Fundamentals: Inflation will rise in 2026, and A-shares are entering a replenishment phase, with revenue, net profit growth, and ROE expected to improve. The Q1 earnings report is expected to show strong performance in cyclically driven sectors. Currently, A-shares’ inventory cycle remains low, and with oil prices rising in 2026, PPI improvements will promote corporate replenishment cycles; additionally, oil prices influence cyclicals through inventory revaluation, cost transmission, and demand elasticity.

Industry trend: Global Halo trades are prevalent. The “Halo” assets (heavy assets with low淘汰率, with both financial scores above 45) are mainly distributed in: cyclic resource sectors such as coal, non-ferrous metals, oil and petrochemicals, building materials, infrastructure utilities, transportation, and some consumer staples like food and beverages with strong branding.

(Source: Shenwan Hongyuan, March 17, 2026, “Spring 2026 Industry Strategy | Inflation exceeds expectations, cyclicals still in trend”)

【How to comprehensively allocate the non-ferrous sector?】

The current overall value of non-ferrous metals allocation is prominent, supported by multiple favorable factors such as “monetary easing, supply-side rigidity, and new demand drivers,” strengthening both metal and commodity attributes! If you are optimistic about future investment opportunities in precious metals and bulk industrial metals, focus on “higher gold-copper content” non-ferrous ETFs like the China Universal Gold and Copper ETF (159652), with off-exchange links (Class A: 019164; Class C: 019165). The advantages of the China Universal Gold and Copper ETF (159652) include:

1. Comprehensive coverage of major metal sectors: The ETF’s index covers gold, copper, aluminum, lithium, and rare earths, aiming to benefit from the super cycle of non-ferrous metals.

Data as of 20260227, based on CITIC’s three-level industry classification.

2. Leading “gold-copper content”: The ETF’s index has a copper content of 33% and a gold content of 13%, with a combined gold-copper content of 45%, leading among peers.

Data as of 20260227, based on CITIC’s industry classification.

3. Better yield performance: Since 2022, the ETF’s index has outperformed peers in Sharpe ratio and has lower maximum drawdown, offering a better investment experience.

Data as of 20250227.

4. Gains driven by profits, not valuation expansion: Despite leading gains last year, the valuation remains relatively reasonable! The PE (price-to-earnings ratio) of the ETF’s index is 32.30x, down 45% from five years ago, offering high valuation cost-effectiveness and safety margin. Notably, the index’s cumulative increase is 126%, indicating that the rise is driven by earnings growth rather than valuation expansion—currently in an EPS-driven phase!

Data from 20210228 to 20260227.

Risk warning: Funds are subject to risks; investment should be cautious. Investors should read the “Fund Contract,” “Prospectus,” “Product Summary,” and other legal documents to understand the fund’s risk-return profile, especially specific risks, and assess whether it matches their investment objectives, experience, and risk tolerance. The fund manager commits to managing and operating the fund assets with honesty and prudence but does not guarantee profits or the safety of principal. This fund is classified as a higher risk product (R4), suitable for investors with an “Aggressive” (C4) or higher risk profile after risk assessment. Investors should be aware of risks related to index-based investing, concentration risk in specific non-ferrous stocks, ETF operation risks, and risks associated with investing in specific commodities. The individual stocks mentioned are for objective reference only and do not constitute investment advice. Any investment decision is at the investor’s own responsibility. The opinions, analysis, and forecasts in this document do not constitute any form of investment advice.