CITIC Securities: Tech sector turbulence, gold hit by liquidity impact

According to The Smart Finance News APP, CITIC Securities released a research report stating that this week, the Federal Reserve kept interest rates unchanged and U.S. Treasury yields declined, but neither event provided much support to the non-ferrous metals sector. The massive spending plans by U.S. tech giants have raised concerns in the market about whether the debt-driven AI infrastructure boom can persist, leading to a sharp decline in tech stocks. The decrease in net long positions by CFTC gold funds and SPDR holdings suggests that gold may be experiencing a liquidity shock to supplement tech stock margin requirements. Even though funds have flowed into U.S. Treasuries for safe haven, pushing yields down, gold bulls remain unmotivated. Liquidity shocks typically end with a triggering event or are resolved through liquidity easing.

CITIC Securities' main viewpoints are as follows:

(1) Gold: Facing liquidity shocks with consecutive losses below the 4000/3900 thresholds. The mid-week Federal Reserve meeting kept rates unchanged and U.S. Treasury yields weakened, neither of which provided upward momentum for gold prices. Gold has declined for the third consecutive week, breaking below $4000/$3900 per ounce this week, with a drop of 3.13%. The number of CFTC futures and options fund long positions has continued to drop from 253,000 in early September to 216,000, while SPDR Gold ETF holdings have decreased by 18.53 tons over the past nine trading days. Against the backdrop of falling U.S. tech stocks and high oil prices, gold is being sold off for liquidity, despite safe-haven inflows into U.S. Treasuries pushing yields lower. Historically, liquidity squeezes are often alleviated by monetary easing, but the latest Federal Reserve meeting showed no signs of monetary relaxation. In the long run, high debt levels in major economies, dollar oversupply, and fiscal support remaining above historical averages (for example, the U.S. federal budget deficit is projected to rise to $1.99 trillion in fiscal year 2026, up from $1.78 trillion in 2025, marking new highs since the pandemic), have led to an increase in federal debt and growing concerns over the dollar's credit, thereby supporting an upward shift in gold’s price range.

(2) Copper: CFTC net longs continue to decline, putting pressure on copper prices. Copper prices weakened this week, while downstream restocking willingness increased, resulting in a decrease of 24,700 tons in domestic refined copper social inventory to a total of 66,900 tons. As the latest copper concentrate TC fell to a historic low of negative $240/dry ton, smelting losses continued to widen, and October’s electrolytic copper production may fall to the lowest level of the year. With copper prices falling and downstream restocking, the available spot supplies are decreasing, and the spot premium has risen to 1,100–1,350 yuan. Although the commodity nature is strong, high oil prices increase interest rate hike concerns and tech stock declines have caused gold to face liquidity risks, triggering expectations of weaker economic growth, thus weighing on copper prices. Recently, industrial players have eased their bullish expectations for future copper prices, recognizing this as the tightest copper market environment, due to factors like U.S. tariffs on copper leading to low non-U.S. inventories, reduced Chinese scrap copper, and the AI consumption narrative. As a result, long positioning willingness has diminished, and CFTC copper fund net longs have continued to decline, putting further pressure on copper prices.

(3) Aluminum: Global low inventory supports aluminum prices’ resilience. This week, domestic electrolytic aluminum spot inventories fell by 34,000 tons to 549,000 tons. This rapid destocking has lifted near-month aluminum prices, dragging up far-month prices and causing a rare Shanghai aluminum monthly spread of 1,000 yuan, making Shanghai aluminum highly resistant to declines. Although overseas capacity additions and Middle East restarts next year may lead the global aluminum market into oversupply, this is a slowly materializing variable. Currently, LME and domestic spot inventories remain low, effectively countering bearish forces based on future surpluses. Due to insufficient scrap aluminum replenishment and last-minute export order grabs at the terminal end, destocking is expected to continue, potentially dropping to the 400,000-ton threshold, with aluminum prices above 23,000 still having upward potential. Currently, the equity side is already quite pessimistic on long-term aluminum price metrics. With a 6% dividend yield based on 20,000-yuan aluminum prices and the difficulty for aluminum prices to drop quickly, dividend-chasing investors may consider opportunistic allocations.

Risk Warnings

1. A sharp global economic recession causing a collapse in consumption. In the latest World Bank Global Economic Outlook, the 2026 global economic growth forecast was raised from 2.3% to 2.6%, but economic growth has slowed in recent years. If the global economy falls into a deep recession, it would have a huge impact on non-ferrous metals consumption.

2. U.S. inflation gets out of control, aggressive Federal Reserve tightening exceeds expectations, and a strong dollar suppresses equity asset prices. The U.S. is struggling to control inflation and continues to raise interest rates. While the Federal Reserve has conducted multiple large rate hikes, sticky components like rents and wages continue to restrict inflation from declining. If the Fed maintains aggressive rate hikes, it would weigh on dollar-denominated non-ferrous metals.

3. The growth in consumption of the domestic new energy sector falls short of expectations, and the real estate sector remains sluggish. Despite some loosening policies on the property sales side, weak consumer willingness to buy and slow progress in resolving real estate enterprise debt risks persist. If sales continue to stagnate, the completion rate in the real estate sector could face a sharp slowdown, which would be unfavorable for the consumption of certain domestic non-ferrous metals.