From Precious Metals to Industrial Metals: The Transmission Path and Opportunities in This Round of Price Increases

How does the AI · HALO concept influence the valuation of upstream sectors in the A-share market?

(Author Wu Zewei is a special researcher at Su Commercial Bank)

Since the fourth quarter of last year, after gold prices surged for four consecutive years, the gold-silver ratio was pushed to an extreme high, ultimately triggering a short squeeze in the silver market, with silver prices rising sharply; subsequently, industrial metals like copper and aluminum followed suit. As geopolitical conflicts in the Middle East intensified, crude oil prices also surged recently, leading to a broad rally in the commodities market.

This article will deeply analyze the underlying logic of this round of global “price increase” and provide references for investors’ medium- and long-term allocations.

Where does the vigorous “price increase” come from?

Looking at commodity prices since 2024, we see highly divergent trends among different commodities. Among them, precious metals started earliest and saw the largest gains, significantly outperforming the composite index and far surpassing industrial, agricultural, metal, and energy categories.

Taking the precious metals index as an example, its main components are gold and silver futures, which aligns with our intuitive experience—gold was the pioneer of this commodity bull market. This brings out the first and most core logic of the “price increase”: as U.S. debt hits record highs and the Federal Reserve enters a rate-cutting cycle, the international monetary system centered on the dollar is experiencing “big inflation,” significantly weakening the purchasing power of credit currencies. It can be understood that most commodities are priced in USD; thus, their price rises are partly due to the dollar’s weakness. Gold, with almost no industrial use and primarily serving as a store of value, was the first to rally and performed most prominently during the dollar’s weakening cycle.

In other commodity indices, the second place is non-ferrous metals. In fact, after a brief rise in 2024, non-ferrous metals declined and entered a prolonged consolidation phase, only to surge again rapidly at the end of 2025.

The main components include iron ore, rebar, copper, aluminum, nickel, etc., with copper, nickel, and lithium leading the rally. This reveals two additional logical drivers of the “price increase”: accelerated development of new productive forces and gradual recovery of traditional economies. For example, with rapid AI development and the acceleration of new energy vehicles, demand for copper, nickel, and lithium in data centers and power batteries has experienced nonlinear growth. Due to supply-side constraints in mining, even slight demand increases can significantly push prices upward.

Meanwhile, as major global economies enter a rate-cutting cycle, traditional sectors centered on real estate also show signs of recovery. However, overall, we are still at the end of the real estate cycle, with the recovery slope of traditional economy clearly slower than that of new productive forces. This explains why the black series underperforms compared to non-ferrous metals, and within non-ferrous metals, aluminum prices rose less than copper. Nonetheless, traditional economy has at least entered a bottoming and stabilization phase, and its future impact on commodity prices is shifting from drag to support.

The indices for industrial products and agricultural products, which rank lower in gains, reveal the last logical driver of this “price increase”: as China’s “high-quality development” progresses, supply-demand patterns in some industries are improving, and manufacturers’ pricing power is gradually recovering. This policy orientation was first proposed at the Politburo meeting on July 30, 2024, which emphasized strengthening industry self-discipline and preventing “vicious internal competition.” Subsequently, a policy package was implemented, including raising energy consumption and environmental standards, encouraging leading enterprises to undertake mergers and acquisitions, and strengthening capacity regulation.

Which A-share sectors are most affected by the “price increase”?

Upstream sectors in the industry chain generally have stronger bargaining power, allowing them to pass cost pressures downstream more smoothly, thus enjoying the benefits of price increases earlier and more fully. In contrast, industries closer to consumption may face dual pressures of rising costs and weakening demand during the initial phase of a price rally.

Currently, the A-share market is above the 4,000-point threshold, with major broad-based indices reaching their highest valuation percentiles in nearly a decade. High valuations mean the probability of widespread sector gains is narrowing. Against this backdrop, excess returns mainly come from two directions: one is identifying niche segments still at low valuations, and the other is focusing on subfields with high profit growth potential.

According to Shenwan’s first-level industry classification, upstream sectors include petroleum and petrochemicals, coal, basic chemicals, non-ferrous metals, and steel. Further subdividing into secondary industries within these sectors, we use a combined score based on historical valuation percentiles and profit growth rates: higher scores are given to sub-industries with lower valuation percentiles and higher profit growth, and vice versa.

Industry valuation and profit growth

[Graph omitted]

Data source: Wind, Xingtu Financial Research Institute

The screening results show that top-ranked secondary industries include: general steel, energy metals, coke, precious metals, rubber, industrial metals, chemical raw materials, minor metals, agrochemical products, and chemical fibers. From a portfolio perspective, these segments are expected to benefit simultaneously from valuation recovery and profit growth, with potential for a “Davis double play.”

It’s worth noting that these sectors are mostly tangible assets and may also benefit from the recently popular HALO concept. HALO stands for “Heavy Assets, Low Obsolescence,” first proposed by international investment banks like Goldman Sachs. The popularity of this concept reflects a market shift from chasing lightweight, growth-oriented assets to embracing certainty. In the context of rapid AI iteration, capital is seeking assets that are difficult to be overturned and possess tangible moats. The five core sectors—petroleum and petrochemicals, coal, basic chemicals, non-ferrous metals, and steel—are characterized by dense tangible assets, high replication costs, and stable cash flows. They are indispensable “sellers” in the AI era and can resist technological shocks through physical barriers, making them central to this round of tangible asset revaluation.

First Financial’s exclusive initial publication; this article solely reflects the author’s views.

(This article is from First Financial)