Beneath the surface of short-term inflation and employment data, amid the ongoing tech‑sector tug‑of‑war, the Federal Reserve's monetary policy remains easier to loosen than to tighten. This asymmetry in policy may suggest that the current gold bull market has yet to run its course.
Zhitong Finance APP has learned that CITIC Securities released a research report stating that, since 2026, gold has experienced three distinct market cycles. At its core, this is not a fundamental reconfiguration of medium- to long-term pricing dynamics, but rather a fierce tug-of-war driven by short-term liquidity conditions. The year's steady trend points to the enduring influence of global central banks' gold purchases and reserve diversification strategies; meanwhile, the primary source of uncertainty stems from the interplay between geopolitical tensions and the impact of hawkish policy shifts on liquidity pathways. Since July, gold has completed its first round of correction, driven by fiscal constraints and expectations of monetary tightening. For gold prices to embark on the second leg of a sustained upward move, confirmation of meaningful monetary easing by the Federal Reserve will be required. Looking beyond short-term inflation and employment data, amid ongoing technological competition, the Fed's monetary policy remains easier to loosen than to tighten. This asymmetry in policy may indicate that the current bull cycle for gold has yet to conclude.
CICC's key viewpoints are as follows:
I. This year, gold has experienced three distinct rounds of pronounced market shifts, with capital flows and volatility reinforcing each other.
In the first phase, from January to February, gold continued its previous upward trend and accelerated higher.
On the funding front, global gold ETFs increased their holdings by 120 tonnes in January, pushing total assets under management to a record high; Asia and North America added 62 and 43 tonnes, respectively. Meanwhile, gold options trading and market volatility rose markedly, with prices experiencing several significant intraday swings at the end of the month.
The second phase, spanning March to June, saw gold move from its peak into a prolonged period of consolidation.
Capital flows have weakened in tandem. In the second quarter, global gold ETFs recorded net outflows of 45 tonnes, with particularly pronounced outflows from the North American market; meanwhile, Chinese investors and trend‑following funds in Europe and the U.S. also reduced their gold holdings. By the end of June, both gold prices and market positioning had cooled significantly from their year‑to‑date peaks.
The third phase, from July to the present, has seen gold prices bottom out around $4,000–$4,200 per ounce and initiate the first round of recovery.
Outpacing the sharp rebound in gold prices in August, fund flows began to improve as early as July: global gold ETFs recorded net inflows of roughly $3 billion and added 23 tonnes, ending two consecutive months of outflows. Europe emerged as the primary region for inflows, Asian investors continued to increase their holdings, and North America shifted from net outflows to a modest net inflow.
The shift between the second and third market phases does not reflect a prolonged re‑evaluation of underlying fundamentals; at its core, it remains a fierce short‑term battle over liquidity.
Short-term gold price fluctuations are primarily driven by liquidity and private-sector positioning—reflected in ETF flows—determining the slope and magnitude of price movements. In the medium to long term, trends are more influenced by U.S. fiscal credibility, shifts in the global monetary system, and central bank reserve diversification, which set the equilibrium level for gold prices and underpin support at lower levels.
This year, the relatively stable factors are the U.S. fiscal deficit and high interest burdens, as well as the medium- to long-term support provided by global central banks' gold purchases; the real source of uncertainty lies in the trajectory of monetary liquidity.
Meanwhile, liquidity expectations have been shaped primarily by the combined effects of geopolitical tensions and the Fed's policy stance. The former influences policy outlooks via oil prices and inflation, while the latter directly alters market perceptions of the Federal Reserve's reaction function. Together, these factors have driven gold from an年初 rally into two rounds of correction.
In the first phase, as geopolitical tensions drove up oil prices and intensified inflationary pressures, gold experienced its initial pullback (March–April).
In the second phase, with Powell's appointment, market perceptions of the Federal Reserve's reaction function shifted further, triggering a second wave of gold price declines (June).
III. Signals in July: Easing of Tightening Expectations and a Convergence of Credit Narratives.
The key signal from the July market is not that the Federal Reserve has entered an easing cycle, but rather that high interest rates are no longer sufficient on their own to suppress gold.
The pricing trend for gold in July can be summarized as two main directions:
First, cooling trends in employment, inflation, and consumer spending have begun to temper expectations of continued rate hikes, easing short-term liquidity pressures.
Second, the protracted nature of geopolitical tensions, fiscal deficits, and the rising term premium on U.S. Treasury bonds have intensified demand for medium- and long-term credit hedging.
The former reduces the downward pressure on gold, while the latter strengthens its upward support, jointly driving a recovery in gold prices as liquidity and credit dynamics reinforce each other.
First, since July, U.S. employment has continued to cool, and inflation has remained relatively moderate, leading to a gradual easing of the one-sided tightening stance that had been in place since Powell's tenure.
On the employment front, labor market tightness in the United States has eased markedly, with new hiring demand nearing a standstill. Wage and labor supply indicators likewise point to a loosening of the labor market.
On the inflation front, price pressures eased marginally in July, and the risk of a second-round inflationary surge has yet to spread further. Consumer data have reinforced signals of a gradual economic slowdown.
Following the release of employment, inflation, and consumer data, markets have begun to reassess the rationale for a unilateral tightening policy under Chairman Powell. As of August 17, the market-implied probability of a rate hike in September has fallen to around 33%, markedly lower than the 51.2% level a month earlier.
Second, geopolitical tensions have shifted from episodic to persistent constraints on energy, fiscal policy, and governance; fiscal credibility has once again become a factor in pricing, and demand for credit hedging has intensified.
As geopolitical tensions persist, the focus is shifting from short-term interest-rate suppression to a gradual reliance on long-term policy‑driven credit support.
On July 8, Trump announced that the U.S.-Iran memorandum had "come to an end," after which passage through the Strait of Hormuz has remained obstructed. The military and economic standoff between the U.S. and Iran has continued to ebb and flow, and geopolitical tensions have begun to shift from one-off shocks to sustained constraints on energy, finance, and policy.
The protracted nature of geopolitical conflicts is primarily supporting gold through three channels.
First, persistently high energy prices will increase the fiscal burden on the government to sustain economic growth and keep household costs stable.
Second, rising expenditures on national defense, energy security, and supply-chain restructuring will further widen the fiscal deficit and increase the demand for government bond financing.
Third, when long-term interest rates continue to rise and undermine fiscal stability and financial conditions, markets will accordingly raise their expectations for policy intervention, liquidity support, and even future monetary easing.
In July, the U.S. Treasury yield curve premium resumed its upward trend, signaling a resurgence of monetary‑credit risks.
The New York Fed's ACM model likewise indicates that the U.S. Treasury term premium rose markedly in July, with the 10-year Treasury term premium climbing from roughly 0.51% on June 30 to about 0.84% by July 31—a gain of approximately 33 basis points over the month. By mid-August, it remained anchored in a relatively high range of 0.80%–0.90%, and on August 17 briefly approached 0.90%. This suggests that even as employment and inflation show marginal signs of easing and market expectations for continued monetary tightening have softened, long-term U.S. Treasury yields continue to reflect a higher compensation for duration risk.
The U.S. Treasury subsequently announced that it would increase the size of its single‑transaction liquidity‑support repurchase operations for 10‑ to 30‑year Treasury securities from $2 billion to at least $4 billion, underscoring a growing sensitivity among policymakers to liquidity conditions and maturity‑risk in the long‑end market. While this move by the Treasury does not constitute quantitative easing nor can it be simplistically construed as debt monetization, it signals that, as long‑term interest rates continue to rise, the constraints on both fiscal and monetary policy are intensifying.
For gold, this shift carries significant implications: if the rise in long-term interest rates stems primarily from economic growth and improved real returns, it typically weighs on gold; however, if the increase reflects fiscal deficits, higher bond supply, or policy‑related credit risks, gold and long-term yields may move higher in tandem.
Third, central bank gold purchases and reserve diversification continue to provide support at the bottom.
Against the backdrop of deepening geopolitical competition, the central bank's gold‑buying strategy has shifted toward a more proactive, medium- to long‑term strategic allocation, a trajectory that remains firmly in place.
Second-quarter data show that the central banks' long-term trend of gold purchases has not reversed despite the pullback in gold prices. Global central banks' net gold purchases reached 289 tonnes in the second quarter, roughly four times the revised figure of 57 tonnes in the first quarter, marking the highest level on record for any second quarter. Notably, the National Bank of Poland increased its holdings by 51 tonnes, while the People's Bank of China added 33 tonnes; central banks in Uzbekistan, Kazakhstan, Jordan, and the Czech Republic also maintained net buying.
This year, empirical evidence of the central bank's strategic gold‑allocation approach is also reflected in the continued trend of gold repatriation, as reserve diversification begins to gain regional trading and clearing platforms—such as Hong Kong, China.
On the one hand, by 2026, the repatriation of gold will shift further from isolated incidents to a broader trend in reserve management.
India has significantly increased the proportion of gold held domestically, France has completed the standardized repatriation of its New York‑held gold and transferred it to Paris custody, and discussions in Germany and Venezuela over overseas control have also intensified markedly.
On the other hand, the development of a series of infrastructure projects in Hong Kong's gold market has, from a practical standpoint, underscored the growing strategic significance of gold.
Looking beneath the surface, central bank gold purchases, the repatriation of reserve holdings, and this year's developments in Hong Kong's gold‑market infrastructure all point to the same trend: gold is transitioning from a passive legacy asset on central banks' balance sheets to an actively managed strategic reserve.
IV. Fiscal policy determines the direction of resource allocation, while monetary policy dictates the pace of the next phase of price increases.
As U.S. fiscal concerns shift from long-term expectations to short-term market constraints, gold may have already completed the first phase of its valuation correction, moving from "overly tight pricing" to a relatively balanced stance between fiscal and monetary policy.
Since July, gold has completed its first leg of recovery, moving from around $4,000 to $4,600 per ounce. At its core, this rally does not reflect the full realization of accommodative policies; rather, it reflects a shift in market pricing—from a singular narrative of "high interest rates, a strong U.S. dollar, and continued tightening"—to one that now factors in economic cooling, fiscal‑credit risks, and the possibility of a marginal pivot in monetary policy.
Following the completion of the first-round valuation correction, fiscal support and central bank gold purchases can still lift gold's allocation floor and cap downside risks, but they are unlikely to sustain the short-term pace of gains. For gold to move beyond this initial valuation repair into a second round of sustained upward momentum, confirmation of substantive monetary easing will remain necessary.
Subsequently, you can focus on observing three sets of signals:
First, whether the labor market continues to cool will shift the policy focus back from inflation to employment.
Second, whether inflation can remain under control and whether the Federal Reserve is willing to tolerate a certain degree of energy‑related inflation;
Third, the question is whether North American gold ETFs can shift from tentative pullbacks to sustained net inflows. Together, these three factors will determine whether easing expectations evolve from directional bets into concrete policy measures and confirmed capital flows.
Beneath the surface of short-term inflation and employment data, the Federal Reserve's policy stance remains firmly aligned with the fundamental interests of the U.S. economy and financial system. Amid the ongoing technological rivalry, the medium- to long-term trend—characterized by monetary easing that is easier to implement than tightening—suggests that gold's current rally has yet to run its course.
In a previous report, CITIC Securities systematically argued that the Federal Reserve's policy stance is fundamentally geared toward serving U.S. national interests. Both the Fed's purported independence and its monetary framework are adjusted in response to changing circumstances, with the 1970s serving as a prime example. For the United States, the top priority is maintaining technological leadership to ensure monetary and financial stability; next comes addressing the risks to social stability embedded in K‑shaped income and wealth disparities; only at the very end does it focus on the level of inflation.
Once one has grasped the U.S. model, the country's current predicament, and the Federal Reserve's fundamental stance, it becomes possible to identify a medium- to long-term overarching trend: amid the ongoing technological rivalry, the Fed is more likely to ease monetary policy than to tighten it. This asymmetry in policy also underpins the view that the gold bull market has yet to run its course.
Technological competition is increasing the United States' reliance on long-term capital and accommodative financial conditions; monetary policy may need to tighten temporarily, yet it may be difficult to sustain indefinitely allowing real interest rates and financing costs to rise without bound.
Risk Warning:
The sustainability of the consumption recovery remains uncertain. Whether it will continue to hover at low levels or gradually return to a more normalized growth trajectory still requires close monitoring. If consumer spending remains weak, the momentum of the economic recovery will be constrained.
Uncertainty remains as to whether the real estate sector can continue to improve. This round of the property downturn has already persisted for an extended period, and while a brief rebound has emerged, many key indicators are still in negative territory. Whether this recovery trend can be sustained will require close monitoring going forward.
There is a risk of incomplete statistical coverage due to data availability, as well as risks of estimation errors arising from model failure and statistical measurement errors.
The impact of monetary tightening in Europe and the United States may exceed expectations, weighing on global economic growth and asset price performance.
Geopolitical tensions remain fraught with uncertainty, weighing on the global economic growth outlook and market risk appetite.