With US-Iran ceasefire negotiations entering their final stage, the core logic that previously suppressed gold prices is reversing, potentially opening a window for gold allocation.
The US and Iran announced on the 14th that they had reached a memorandum of understanding on a truce. The US President stated on social media that the Strait of Hormuz would reopen following the signing of the memorandum on the 19th. Boosted by this news, oil prices plunged 5% on Monday, while spot gold rebounded sharply by 3%.
Where to Begin
In a report published on June 15, Shenwan Hongyuan Securities Research pointed out that gold's implied volatility has fallen to a historical low, indicating that gold currently possesses favorable allocation value.
The institution's quantitative model shows that if central banks and ETFs maintain their current gold purchasing pace through 2026, the average gold price for the year could reach $4,767 per ounce. Under an optimistic scenario, it might touch $5,416 per ounce. Even under a cautious assumption, there remains strong support around $4,250 per ounce.
Three Pressures and a Triple Decline
After reaching a record high of $5,626.8 per ounce in January 2026, gold subsequently entered a sustained correction, experiencing three step-like declines within the year. As of last Thursday, the gold price had retreated more than 20% from its March peak, entering a technical bear market for the first time in four years.
Shenwan Hongyuan Research attributed this round of decline to the combined effect of three pressures.
The first pressure stemmed from a sudden reversal in market expectations for Federal Reserve monetary policy.
Following the outbreak of the US-Iran conflict, oil prices surged significantly. Coupled with May's US non-farm payroll data far exceeding expectations, market expectations for the Fed rapidly shifted from "rate cuts within the year" to "rate hike trades." CME interest rate futures indicated a substantial increase in the probability of a December rate hike. The rising cost of holding gold directly suppressed its price. Currently, the market expects the Fed to implement one rate hike in December 2026.
The second pressure came from a chain reaction in technical analysis.
After the gold price broke below the 200-day moving average (around $4,300), it triggered quantitative stop-losses for systematic funds and momentum traders, reductions in trend-following strategies, and the unwinding of leveraged positions. This "long squeeze" created a negative feedback loop, accelerating the decline in gold prices.
The third pressure arose from a challenge to the central bank gold-buying thesis.
After the sharp rise in oil prices, countries with high energy import dependencies, such as Turkey, India, and Russia, were forced to sell gold reserves to maintain their foreign exchange reserves. Global central banks shifted from net buyers to net sellers, posing a temporary challenge to the gold-buying logic. Notably, the Chinese central bank did not pause its gold purchases during this period, continuing its trend of steady accumulation.
Pressure Points Dissipate, Allocation Window Opens Gradually
Shenwan Hongyuan Research noted that the core source of the aforementioned three pressures lies in the oil price surge triggered by the US-Iran conflict. Therefore, the dissipation of downward pressure on gold also depends on this factor.
As US-Iran negotiations progressed, oil prices have retreated noticeably from their highs.
The backwardation structure in crude oil futures has narrowed significantly, with the premium of near-month contracts over deferred contracts falling from historical highs to levels seen in early March this year, indicating a significant easing of short-term supply tightness concerns. Two key developments require monitoring: first, whether the Strait of Hormuz will be fully reopened following the agreement signing; second, whether oil prices can achieve a systematic decline in their average level against the backdrop of low short-term inventories.
From a quantitative perspective, technical signals in the current gold market have clearly improved. The COMEX gold RSI has dropped to 35.67, with the moving average deviation at an extremely low historical percentile of 1.7%. The Shanghai gold moving average deviation is even lower, at the 0.2% historical percentile, both indicating an oversold condition.
Gold ETF implied volatility has also fallen to a low level, with the put-call volume ratio's historical percentile rising to 86.4%, suggesting that market pessimism has been largely released.
ETF Outflow Pressure Persists, but Downside is Quantifiable
Despite the highlighted allocation value, Shenwan Hongyuan Research also cautioned that the persistent outflow from gold ETFs remains a potential pressure that cannot be ignored.
Referring to the period from 2019 to 2020 when the Fed paused its rate-cutting cycle, the SPDR Gold ETF's holdings declined from a peak of 1,279 tonnes to a low of 974 tonnes, a reduction of 305 tonnes or 24%. Currently, SPDR Gold ETF holdings have decreased by 81 tonnes from their peak, a drop of about 7%, indicating the outflow process is not yet over.
Based on this, the institution calculated worst-case price scenarios under two assumptions:
If extrapolated based on the absolute tonnage reduction from the previous cycle (305 tonnes), there is room for approximately 224 more tonnes of outflow, corresponding to a worst-case gold price around $3,892 per ounce.
If extrapolated based on the reduction percentage (24%), there is room for about 100 more tonnes of outflow, corresponding to a worst-case scenario around $4,250 per ounce.
The latter aligns closely with the support level under the quantitative model's cautious assumption, suggesting that the area around $4,250 may constitute a relatively strong price floor.
Quantitative Model Anchors the Average, Multi-Scenario Analysis Provides Reference
Shenwan Hongyuan Research introduced a global gold ETF size change factor into its original quantitative framework. The updated model shows a significant improvement in its explanatory power for gold prices.
For the current phase (since 2022), the core pricing factors for gold include: global central bank gold reserves, the US fiscal deficit ratio, US economic policy uncertainty, the 10-year US Treasury real yield, and changes in gold ETF size.
Based on this framework, the report provides three scenario forecasts:
Under the baseline scenario (central banks and ETFs maintain their current gold purchasing pace), the average gold price for 2026 is projected to be around $4,767 per ounce.
Under the optimistic scenario (both central bank and ETF gold purchases accelerate), the gold price could reach $5,416 per ounce.
Under the cautious scenario (central bank gold purchases experience negative growth coupled with ETF net outflows), there remains strong support around $4,250 per ounce.
The institution also noted that the above forecasts face multiple risks: short-term asset price fluctuations may not represent long-term trends; if a deep recession occurs in Europe and the US, market panic could exacerbate asset price volatility; and if there is a major shift in US policy direction, it could also interfere with the above judgments.
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