Gold Stocks Plunge as Fed Tightening Expectations Surge

The gold market is feeling the pinch as expectations of Federal Reserve tightening surge. Hong Kong-listed gold stocks have taken a hit, with Lingbao Gold (03330.HK) down 9.01%, Shandong Gold (01787.HK) falling 8.45%, and Tongguan Gold (00340.HK) dropping 5.48%.

The recent hawkish remarks from Federal Reserve officials have boosted market expectations for future monetary tightening, with the probability of a 25-basis-point hike in October rising to 64.8%. The December meeting also sees increased likelihoods: 41.6% for a cumulative 25-basis-point hike and 50.9% for a cumulative 50-basis-point increase.

As interest rates rise, the opportunity cost of holding zero-coupon assets like gold increases. Shandong Gold's decline is particularly significant, with its production target revised downward from 49 tonnes to 36-38 tonnes. This change weighs heavily on market sentiment, leading to a sharp weakening in the company's stock.

Despite this volatility, research from Guojin Securities remains optimistic about gold prices in the medium term. The firm expects a marginal recovery in end-demand as consumers' price tolerance for gold rises and their willingness to engage in value-preserving consumption increases.