CICC: Short-term allocation value of gold is relatively superior to other non-cash assets

CICC’s research report states that over the coming months, inflation in the world’s major economies may rise significantly, with downside risks to growth, and global assets may face new challenges. Compared with the Russia-Ukraine conflict in 2022, current global supply-chain pressures are smaller, economic demand is weaker, and the absolute level of inflation is lower; therefore, we expect this round of stagflation shock to mainly take the form of temporary disruption. The inflation peak will be clearly lower than the level in 2022, and global asset performance will not be as bad as in 2022. Based on estimates using oil futures forward contracts, the peak of U.S. inflation in this cycle will occur around June, close to 4%. We expect U.S. inflation to fall again in the second half of the year; combined with downward pressure on growth and financial risks, the Federal Reserve may still continue to cut rates in the second half. Looking at the medium term, the Fed’s easing trade is likely to return, providing fresh support for assets such as equities, bonds, and gold; in particular, we are optimistic about the long-term performance of Chinese stocks. In the short term (the next 1–2 months), the market faces uncertainty. We recommend maintaining a certain level of cash allocation. From a win-rate perspective, gold’s short-term allocation value is superior to that of other non-cash assets.

The full text is as follows

CICC: Meeting the Challenge of Stagflation

Executive Summary

Over the coming months, inflation in the world’s major economies may rise significantly, with downside risks to growth, and global assets may face new challenges. Compared with the Russia-Ukraine conflict in 2022, current global supply-chain pressures are smaller, economic demand is weaker, and the absolute level of inflation is lower; therefore, we expect this round of stagflation shock to mainly take the form of temporary disruption. The inflation peak will be clearly lower than the level in 2022, and global asset performance will not be as bad as in 2022. Based on estimates using oil futures forward contracts, the peak of U.S. inflation in this cycle will occur around June, close to 4%. We expect U.S. inflation to fall again in the second half of the year; combined with downward pressure on growth and financial risks, the Federal Reserve may still continue to cut rates in the second half. Looking at the medium term, the Fed’s easing trade is likely to return, providing new support for assets such as equities, bonds, and gold. We especially look favorably on China’s stock performance over the long run. In the short term (the next 1–2 months), the market faces three layers of uncertainty; we recommend maintaining a certain level of cash allocation. From a win-rate perspective, gold’s short-term allocation value is superior to that of other non-cash assets.

Body

Inflation across major economies may rise significantly over the coming months, and global assets may face stagflation-related challenges.

Last year, CICC’s asset-class team had an outlook for 2026. One key point of divergence from market consensus is our forecast that U.S. inflation will be higher than the market expects. We forecast that U.S. inflation will rise significantly in the first half of 2026, leading to a staged cooling of the Federal Reserve’s rate-cut expectations, which may create interim pressure on assets such as gold, stocks, and bonds.

After the situation in Iran escalated, although the inflation path and the direction of market operations are similar to our earlier analysis, the magnitude exceeded our expectations. Looking ahead, we forecast that U.S. inflation will jump sharply in the coming months, with the fastest realization occurring in the current week.

Figure 1: U.S. inflation may rise sharply in the coming months, but could fall again in the second half

Source: Haver, CICC Research Department

The main drivers behind the rise in inflation are three factors:

First, the Iran conflict leads to energy prices in March rising above seasonal patterns. This directly pushes up the March U.S. CPI sub-item for energy and transportation services, and indirectly transmits to the core goods and food sub-items.

Figure 2: March gasoline prices across the U.S. rise clearly above seasonal patterns

Source: Bloomberg, CICC Research Department

Second is the compensation effect from the rotation of rental samples. In October–November 2025, a U.S. government shutdown caused the month-over-month increase in October rent CPI to be recorded as 0. After 6 months, the rental sample was rotated again to the sample from October of the previous year. The compensation effect from the sample rotation will cause the month-over-month increase in April rent CPI (accounting for approximately 34%) to double, boosting the inflation reading for that month.

Figure 3: Rental-sample rotation compensation will boost the April inflation reading

Source: Haver, CICC Research Department

Third, tariff cost pressure in the short term will continue to transmit downstream, pushing up the prices of core goods. The U.S. PPI for trade services has risen noticeably recently; the month-over-month growth in January is roughly the same as the highest value during the pandemic period of 2.2%. High-frequency data also show that used-car and new-car prices may strengthen, which will both provide upward momentum to core goods inflation.

Figure 4: The PPI trade-services sub-item has risen noticeably recently

Source: Haver, CICC Research Department

On April 9, the U.S. February PCE month-over-month may already be on the high side. On April 10 (this coming Friday), the U.S. March CPI will provide key clues about the market environment after the escalation of the Iran situation. CICC’s asset-class forecasts for the March nominal CPI month-over-month growth rate are around 90bp. On a year-over-year basis, it would jump directly from 2.4% to around 3.3%. The market’s consensus expectations are more pessimistic than our forecast: the market expects the March nominal CPI month-over-month increase to be 1.0%, with year-over-year growth rising to 3.4%. The upward movement in nominal CPI mainly reflects the impact of oil prices, but the transmission effect of oil prices to core CPI is relatively weak and with a lag. We forecast that the March U.S. core CPI month-over-month is close to 30bp, basically unchanged from the previous month.

Figure 5: Decomposition of month-over-month contributions to U.S. nominal CPI and forecasts

Source: Haver, CICC Research Department

Figure 6: Decomposition of month-over-month contributions to U.S. core CPI and forecasts

Source: Haver, CICC Research Department

Along with the upward pressure on inflation, U.S. growth will also face downside pressure, causing the U.S. economy to enter “temporary stagflation.” At the beginning of 2026, the restart of the U.S. government was expected to boost Q1 economic growth, but as consumption of goods is quickly revised downward and the trade deficit expands, the Atlanta Fed’s GDPNow model sharply revised its forecast for the U.S. economic growth rate in 2026Q1 from 3.1% (2/20) down to the latest 1.6%. Looking ahead, with inflation rising and factors such as geopolitical uncertainty intertwined, the outlook for U.S. growth may continue to weaken.

Figure 7: Ongoing downward revisions to GDPNow’s forecast for U.S. 2026Q1 GDP growth

Source: Federal Reserve, Wind, CICC Research Department

Outside the U.S., inflation forecasts for Europe and Japan for the next 1–2 quarters have also recently risen noticeably. Combined with weak growth, the risk of stagflation for overseas major economies rises in parallel. As the upward pressure on inflation increases, the market has also significantly revised its policy expectations for overseas central banks. The timing of implied Federal Reserve rate cuts embedded in the futures market has been pushed back to the second half of 2027; in 2026, it has even flipped to expectations of rate hikes. Expectations for rate cuts by the ECB and the Bank of England have also reversed to expectations of rate hikes. China is in a weak recovery stage, with ample supply and a relatively low absolute level of inflation; the magnitude of inflation increases may be lower than in Europe and the U.S., and lower than in the U.S.-Japan pairing. Strictly speaking, it will not enter “stagflation.” However, supply shocks may still cause some impact on growth and inflation. In addition, the “Chinese New Year timing mismatch” will cause the “early start” effect to fade, and Q2 economic growth may slow.

Figure 8: Market expectations show a sharp rise in inflation growth rates for Europe, the U.S., and Japan over the next 1–2 quarters

Source: Bloomberg, CICC Research Department

Figure 9: Market expectations that in 2026, major global central banks reverse from rate cuts to rate hikes

Source: Bloomberg, CICC Research Department

A change in the paradigm of the stagflation trade: After the 1980s, asset volatility declines, and gold’s ability to hedge inflation weakens.

Looking back at the four U.S. stagflation periods triggered by geopolitical conflicts in history, the overall pattern is that the stock market falls, while the U.S. dollar and commodities strengthen. Within equities, performance diverges: sectors such as oil and energy, food, and pharma/consumer-related daily chemicals tend to outperform, while areas such as automobiles, durable consumer goods, metal products, and transportation often face pressure.

Figure 10: Median ranking of industry gains and losses during four historical U.S. stagflation periods

Source: Bloomberg, CICC Research Department

Figure 11: With the 1980s as the dividing line, asset volatility is clearly lower during stagflation periods, and gold turns from rising to falling

Note: The upper and lower ends of the bars indicate the maximum gain and maximum drawdown within the event period; the marked points indicate the cumulative gain/loss over the period

Source: Bloomberg, CICC Research Department

However, gold’s performance showed significant differentiation around the early 1980s. During the stagflation periods following the two oil crises in the 1970s, because central banks in major economies had not yet established policy credibility, a near-term increase in inflation would raise long-term inflation expectations, and gold benefited significantly due to its anti-inflation characteristics, with the center of the price level clearly rising. But after the 1980s, Volcker’s aggressive tightening suppressed high inflation, central-bank credibility gradually took shape, inflation expectations became effectively anchored, and the global economy entered a “Great Moderation” phase.

Whether it was the Gulf War or the Russia-Ukraine conflict, although they both at times pushed up oil prices, they did not create long-term stagflation pressure. The volatility ranges of various assets were clearly lower than before the 1980s. Because investors expected central banks to suppress inflation by tightening monetary policy, a rise in short-term inflation would no longer change long-term inflation expectations; instead, it would form expectations of short-term monetary tightening. Therefore, gold’s performance was no longer a one-way beneficiary, but rather it first fell and then rose. After the escalation of the Iran situation, the performance of various assets matches the market operating rules after central banks established credibility in the 1980s. Therefore, in forecasting the market outlook under this round of stagflation conditions, the key lies in predicting the future inflation path and the central bank’s policy response.

This round of stagflation may be a “temporary” shock. U.S. inflation may fall again in the second half of the year; combined with downside growth and financial market risks, the Federal Reserve may continue to cut rates in the second half.

Compared with the macro and policy backdrop when the Russia-Ukraine conflict occurred, the current global supply-chain situation has clearly improved, economic demand is relatively weaker, and the initial level of inflation is lower. We expect that the peak of U.S. CPI in this round may be clearly lower than in 2022, and asset performance will not be as bad as in 2022. If the cycle is priced using oil futures forward contracts, the peak of inflation will appear around June, close to 4%. In an extreme scenario, if oil prices spike to $140 per barrel and remain at this level through year-end, the inflation peak would be about 4.5%.

Figure 12: The global supply-chain pressure index is clearly lower than the level at the beginning of 2022

Source: Haver, CICC Research Department

Figure 13: U.S. inflation may rise in the first half and fall in the second half, and the boosting effect of higher oil prices is limited. Even if oil rises to $140, it is still not enough to push U.S. CPI above 5%

Source: Haver, CICC Research Department

If the Iran situation does not deteriorate further, factors such as reciprocal tariff refunds, falling market rents, and cooling in the economy and labor market may drive U.S. CPI to fall again in the second half of this year, creating room for the Federal Reserve to restart rate cuts.

Compared with 2022, although upward pressure on inflation has decreased relatively, both downside pressure on growth and recession risks have increased, further raising the probability of the Federal Reserve cutting rates. On the growth front: after the Russia-Ukraine conflict in 2022, the U.S. stagflation ultimately did not end in a recession. The reasons were rapid fiscal expansion, a low unemployment rate, and high excess savings in the household sector. But now, U.S. economic growth is relatively weaker, fiscal expansion is smaller, and recession risk is relatively higher. If the Federal Reserve noticeably increases the degree of easing, the economy may avoid recession risk being realized, and a “recession trade” could evolve into an “easing trade.” On the financial-risk front: currently, valuations of U.S. stocks, especially those in the AI sector, are on the high side, which could create a risk resonance with private credit lending (“Will Oil Price Shocks Lead to a Wave of Central Bank Rate Hikes?”). Financial market fragility has increased noticeably, further increasing the probability that the Federal Reserve will shift toward easing.

Figure 14: U.S. fiscal impulse rises in 2022 and turns to decline in 2026

Source: Haver, CICC Research Department

Figure 15: U.S. households’ excess savings are also clearly lower than in 2022

Source: Haver, CICC Research Department

Based on our understanding of the policy framework of CICC’s new Fed chair, Waller, the future Federal Reserve’s monetary policy paradigm may shift from an ex post “data-dependent” approach to a forward-looking approach, and it also increases the likelihood of rate cuts. In “How Will the ‘Waller Shock’ Change Global Markets?”, we believe that Waller is unwilling to implement QE or expand the balance sheet, but it is also difficult to shrink the balance sheet in the short term. A more likely path is for the Federal Reserve to increase the magnitude of rate cuts and relax financial regulation, while the U.S. Treasury cooperates by issuing more short-term Treasury notes, thereby forming a new coordination mechanism between fiscal and monetary policy. In summary, although the futures market (and market consensus) has recently stopped predicting that the Federal Reserve will cut rates this year and has even priced in the possibility of rate hikes, we still forecast that the Federal Reserve’s policy will slow the pace of rate cuts in 2026H1 and re-accelerate rate cuts in 2026H2.

Figure 16: The futures market has recently priced in that the Federal Reserve will not cut rates in 2026, and may even shift to rate hikes

Source: Bloomberg, CICC Research Department

In the medium term, wait for the easing trade to return; in the short term, address uncertainty using a win-rate mindset.

In the medium term (the second half of this year), because we expect the Federal Reserve to restart rate cuts in the second half, we remain optimistic about non-cash assets. We expect that China-U.S. stocks and gold will return to an upward trajectory. Geopolitical developments make the advantages of large-country industrial supply chains even more prominent. Combined with China’s leading position in industries such as AI and green transformation, we especially look favorably on China’s stock performance over the long run.

In the short term (the next 1–2 months), the market faces three layers of uncertainty:

First, the evolution of the Iran situation remains full of variables, with both escalation and de-escalation possible.

Second, in the next few months, overseas inflation may rise sharply. The market could either continue to pull back due to concerns about stagflation, or it may have already priced in high-inflation expectations (for example, the market’s current expectation is that U.S. nominal inflation in March will rise 1.0% month-over-month, which is more pessimistic than our forecast). At present, it is difficult to determine.

Third, if the new Federal Reserve chair takes office as scheduled in May, although we expect Waller may lean dovish, the new chair’s communication style will change, and the market also faces risks of misjudging the direction and overreacting.

Therefore, in the short term, we believe cash still has allocation value. The absolute return uncertainty of non-cash assets is relatively high, so we can only evaluate relative allocation value from a win-rate perspective. In the future, the market’s possible paths can generally be summarized into three deductive scenarios:

Under Scenario 1, if the conflict gradually cools through third-party mediation and transport through the Strait of Hormuz returns to normal, this corresponds to a “Risk-on + liquidity trade”;

Under Scenario 2, if the U.S. and Iran continue exchanging fire, Iran implements limited strikes against the strait and the Middle East, and oil transport and supply are only partially disrupted, this corresponds to a “stagflation trade”;

Under Scenario 3, if the U.S. becomes directly involved in a larger-scale conflict, the strait closes, and global energy supply is hit more severely, then the market will shift to a “recession trade.”

Figure 17: Trading mainlines and asset performance under three potential scenarios

Source: Wind, CICC Research Department

Gold can rise in both Scenario 1 and Scenario 3, while in Scenario 2 it first falls and then rises. U.S. Treasuries rise in Scenario 1 and Scenario 3, and fall in Scenario 2. China-U.S. stocks rise in Scenario 1 and fall in the other scenarios. From a win-rate perspective, gold’s allocation value is higher, and stocks are relatively later.

Even in extreme conditions, if major overseas economies fall into persistent stagflation (Scenario 2), according to the market rules during the Russia-Ukraine conflict, the inflation top also corresponds to gold’s bottom. If the inflation path in this round matches our judgment, gold will most likely confirm the upside turning point at the latest at the inflation peak in 6–7 months. If geopolitical risks ease, expectations for Federal Reserve easing heat up, or financial risks are exposed earlier, the upside turning point for gold will be confirmed earlier. Over the past 3 years, CICC’s asset-class team has firmly backed gold, and starting in late 2025 it has clearly highlighted the risk of a gold correction (“How Far Can the Gold Bull Market Go”, 2025/12/26). After gold has already rebounded significantly downward, our view is even more optimistic: we believe gold has gradually entered the positioning area.

Figure 18: During the Russia-Ukraine conflict, gold prices first fell and then rose

Source: Bloomberg, CICC Research Department

Our review shows that after a geopolitical conflict, Chinese stocks generally need about 1–2 months to absorb the negative shock. In the face of uncertainty in geopolitical conditions, we still recommend controlling position sizes and managing risks for Chinese stocks in the short term.

Figure 19: After geopolitical shocks, the A-share market first falls and then rises, recovering losses in about 60 days on average

Source: Wind, CICC Research Department

With multiple constraints—including valuations that are too high, growth slowing, and increasing financial fragility—the risk may be greater for U.S. stocks and their attractiveness lower.

Although the U.S. dollar has recently benefited from safe-haven sentiment and the stagflation trade, because Europe and Japan have higher external energy dependence than the U.S., their monetary policy stance is relatively more hawkish than the Federal Reserve’s. Under the pattern of monetary policy divergence globally, we believe that a strong dollar is difficult to sustain. From the medium-to-long term perspective, the weak-dollar trend under the restructuring of the monetary order has not changed.

Figure 20: Europe and Japan have higher external energy dependence than the U.S.

Source: World Bank, CICC Research Department

Figure 21: When the dollar falls, non-U.S. stocks outperform U.S. stocks

Source: Wind, Bloomberg, CICC Research Department

（Source: Economic Daily News）