With gold prices falling sharply, is investors' "faith in gold" still reliable?

The key factors underpinning future gold prices remain, first and foremost, the gold-buying willingness of global central banks. Secondly, there is the market demand for strategic allocation on dips.

On July 13 and 14, 2026, the front-month gold contract in New York briefly dipped below the $4,000 per ounce mark. This means that since hitting a historic high of $5,627 per ounce on January 29, the international gold price has fallen by nearly 30% in less than half a year.

In response, Li Zhongliang, an investment manager at Guangdong Cheese Private Equity Fund, told reporters from the Economic Observer that the main reasons for the international gold price falling below $4,000 on July 13 and 14 were the recent renewed escalation of geopolitical conflicts in the Middle East combined with rising expectations of the Federal Reserve raising interest rates. Driven by the renewed escalation of geopolitical tensions, international crude oil prices rose sharply, reinforcing market expectations that the Federal Reserve will maintain high interest rates or even raise them further, which led to a drop in international gold prices.

However, the subsequently released U.S. June inflation data showed that the U.S. CPI rose 3.5% year-on-year (previous value 4.2%), lower than market expectations of 3.8%; the core CPI rose 2.6% year-on-year, below market expectations of 2.8%. After the data was released, expectations for a Federal Reserve rate hike weakened, and international gold prices rebounded slightly.

Sharp Pullback in Gold Prices

As of July 14, 2026, the return on the ICBC Credit Suisse Gold ETF Connect E (020341) purchased several months ago by Ms. Zhang, an investor in Guangzhou, stood at -19.23%.

At the end of January, the spot physical contract Au99.99 on the Shanghai Gold Exchange hit an all-time high of 1,256 yuan per gram. In early February, Au99.99 corrected from its peak to around 1,030 yuan per gram. Ms. Zhang told the Economic Observer that at the time she felt the gold price had already corrected by a significant margin and saw it as the right moment to "get on board", so she started a regular investment plan for the fund, setting a weekly auto-investment of 100 yuan. After that, she made two additional direct purchases of 100 yuan each, and stopped the auto-investment operations after the end of April. Later, the ETF kept falling continuously, and Ms. Zhang was glad she had stopped the regular investment at the end of April, otherwise her losses would have been even more severe.

In the first half of 2026, gold prices experienced drastic overall fluctuations. After hitting a historic high at the end of January, international gold prices trended downwards amid volatility, erasing all their year-to-date gains by mid-June, and the pullback from the peak had approached 30% as of July 14. The trend of domestic gold prices followed a similar pattern.

In this regard, Li Zhongliang believes that the core factor driving gold price movements in the first half of 2026 was rising geopolitical risk, with the U.S.-Iran conflict having a particularly notable impact. The suddenness and unpredictability of geopolitical events amplified the volatility of gold prices.

In addition, Li Zhongliang also stated that the sharp shift in market expectations for the Federal Reserve's monetary policy also amplified gold price fluctuations. In his view, the market's expectations for the Federal Reserve's monetary policy rapidly switched from "rate cuts within the year" to "rate hike expectations", which exerted obvious downward pressure on gold prices. Furthermore, the pace of gold purchases by central banks around the world has also slowed down compared to previous years, and multiple factors together drove the drastic volatility in gold prices.

A related research report released by Industrial Securities pointed out that from March to June 2025 and from October 2025 to March 2026, affected by the weakening of the U.S. dollar's credit, continuous central bank gold purchases, and a massive influx of leveraged funds, the correlation between gold prices and the real interest rate of U.S. Treasury bonds once weakened and even turned positive. However, since the end of February 2026, as the candidate for the new Federal Reserve Chair emerged, market concerns about the Federal Reserve's independence have diminished, and the negative correlation between the real U.S. Treasury rate and gold prices has returned. During the same period, as the real U.S. Treasury rate rose sharply, gold prices came under corresponding downward pressure.

In mid-June, at the Federal Reserve FOMC (Federal Open Market Committee) meeting, the new Federal Reserve Chair Walsh released hawkish signals. The meeting minutes showed that, affected by the lagged impact of tariffs, energy and supply chain shocks, participants believed that the risks to the inflation outlook remained tilted to the upside. If inflation falls back, monetary policy may be kept steady or gradually eased; if Middle East conflicts or tariff factors keep inflation persistently high, further tightening of monetary policy may be required.

But in early July, the U.S. non-farm payrolls new employment figure for June plummeted to less than half of market expectations.

In response, Wang Xiang, fund manager of Gold ETF Bosera (159937), told reporters that this further weakened market concerns about the Federal Reserve's tightening outlook. Overall, the non-farm payroll data to some extent interrupted the previous market expectations of a strengthening U.S. job market, showing that the U.S. labor market remains in a weakly balanced state of slow cooling.

What Is the Future Trend?

The net capital inflow/outflow of gold ETF products is a "window" for observing gold price trends.

At present, there are mainly two types of gold ETF products in China: one type is gold ETFs that track the price of the Au99.99 spot physical contract on the Shanghai Gold Exchange, totaling 7 products; the other type is gold ETFs that track the price of the Shanghai Gold central pricing contract on the Shanghai Gold Exchange, also totaling 7 products.

According to iFinD data from Tonghuashun, as of July 13, the 14 aforementioned gold ETFs saw a total net capital outflow of 11.188 billion yuan over the past month. Among them, Gold ETF Huaan (518880) had a net capital outflow of about 3.4 billion yuan in the past month, the largest scale of capital outflow; in addition, Gold ETF Bosera (159937), Gold ETF E Fund (159934), and Gold ETF Guotai (518800) also recorded net outflows of over 1 billion yuan each.

At the same time, overseas gold ETF products are also facing capital outflows. For example, SPDR Gold Trust (GLD), the world's largest gold ETF, has also seen a significant reduction in its positions: its holdings fell from 1,086.53 tons at the start of 2026 to 1,002.45 tons on July 13, with a cumulative reduction of about 84.08 tons of gold so far this year. As one of the most liquid financial instruments in the world that directly tracks physical gold prices, the daily position changes of SPDR Gold Trust are widely regarded as a "barometer" of institutional and retail investor sentiment.

Data from the Institute of Economics and Finance of Industrial Securities also shows that global gold ETF funds saw significant outflows of 84.3 tons and 73.9 tons in March and June respectively, dominated by North American capital.

So, what exactly will the future trend of gold prices look like?

In Li Zhongliang's view, the key factors supporting future gold prices remain, first and foremost, the gold-buying willingness of global central banks. At present, although the pace of central bank gold purchases has slowed down compared to before, the overall attitude remains one of increasing holdings, which has a positive impact on stabilizing gold prices in the future. Secondly, there is market demand for allocation on dips. After gold prices experience a sharp short-term decline, it often triggers allocation buying demand from long-term investors, which will also provide support for future gold prices.

Li Zhongliang also stated that from a short-term perspective, the downside risk in current gold prices has not been fully released, but gold prices still have the potential to continue rising in the medium and long term.

The person in charge of Shenzhen-Hong Kong Dragon (Dongguan) Capital Investment Co., Ltd. told reporters that there are many factors affecting the future trend of gold prices, but from an investment perspective, the main considerations are the current yield of gold (the return obtained from short-term holding after buying now) and the forward realization opportunity (the possibility of selling for profit in the future).

Regarding whether gold prices can reach new highs in the future, the aforementioned person in charge believes the key lies in the forward realization opportunity. According to relevant reports, overall, gold production is entering a high plateau period. From a production perspective, in this round of gold bull market in recent years, gold production, restricted by various factors, has failed to keep up with market demand in a timely manner, which has increased the forward realization opportunities for gold in the coming period.

He also emphasized that gold has long been the fundamental anchor of currency, and in the current context of "de-globalization", the fundamental anchor status of gold will become more prominent. Of course, if "de-globalization" reverses back to "positive globalization", that might signal the true end of the gold bull market.

Wang Xiang believes that the room for irrational decline in gold prices may be limited, and gold prices may fluctuate to build a bottom near the $4,000 per ounce level. He stated that despite the recurring situation in the Middle East, constrained by the mid-term elections, the probability that U.S. President Trump will significantly expand the war is not high. The current tough actions by both the U.S. and Iran are still aimed at gaining bargaining chips for negotiations.

This article is from the WeChat official account "Economic Observer", author: Lao Yingying, published with authorization from 36Kr.