Huaxi Securities released a research report stating that on January 30, the gold price plummeted over 9% in a single day, marking its largest one-day drop in 40 years. The announcement of Kevin Warsh as the new candidate for Federal Reserve Chair by Donald Trump triggered a gold price correction, as markets grew concerned about a potential shift in Trump's previously stated preference for a weaker U.S. dollar, given Warsh is widely perceived as a hawk. The primary driver of this major gold bull market is the declining status of the U.S. dollar. This decline stems partly from the Trump administration's own preference for a weaker dollar, but also from a broader international distrust of the dollar, which has become a significant historical trend providing long-term support for gold. Structural issues within U.S. GDP remain prominent, making a significant reversal in interest rate cut expectations unlikely. Huaxi Securities' main views are as follows:
Supply: Total gold supply in 2025 increased by 1% year-on-year to 5,002.3 tons. Producers have consistently focused on full price exposure, showing little interest in hedging. Gold miners also delivered strong performance in 2025. However, the median market expectation for a potential gold price decline may prompt some participants to become more cautious. Hedging behavior is shifting from selling call options to buying put options—though the scale remains relatively limited—indicating miners' desire to retain upside exposure while obtaining downside protection. Nevertheless, challenges persist in raising production above current levels.
Demand: Gold demand (excluding OTC and other) reached 4,999.4 tons in 2025, an 8% year-on-year increase. Total gold demand, excluding OTC and other, grew 8% year-on-year to 4,999.4 tons in 2025. This comprised jewellery fabrication of 1,638.0 tons (down 19% YoY), technology usage of 322.8 tons (down 1% YoY), investment demand of 2,175.3 tons (up 84% YoY), central bank net purchases of 863.3 tons (down 21% YoY), and OTC and other demand of 2.9 tons (down 99% YoY).
Jewellery: Jewellery demand volume declined year-on-year across all global markets—an unsurprising outcome given gold prices repeatedly hit record highs in 2025. However, demand measured by value told the opposite story: all markets saw growth, as higher gold prices completely offset the decline in volume. The significant rise in gold prices during 2025 inevitably pressured the purchasing power of global jewellery consumers. Yet, this did not dampen consumer enthusiasm for jewellery, as evidenced by the sharp increase in the total value of jewellery demand, with consumers allocating a significantly larger share of their spending to gold.
Investment: Global gold investment more than doubled in value during 2025, reaching a staggering $240 billion. Safe-haven demand and asset allocation diversification remained the primary drivers. Geopolitical and geo-economic risks, a weaker U.S. dollar, high equity market valuations, and interest rate cut expectations played key roles throughout the fourth quarter and the full year. The surge in the gold price itself further stimulated demand, particularly in Q4, injecting strong momentum for various investor types. The price correction in October actually enhanced investment momentum, providing an attractive entry point for investors to increase holdings. This drove investment demand in the second half to a record high, with total purchases of ETFs, bars, and coins reaching 1,141 tons. Investment demand from a broader base (including high-net-worth individuals and institutional investors) remained persistently high. This less visible demand is typically reflected in the OTC and stock flow category, which also encompasses changes in exchange inventories, unobserved changes in processing stocks, and any statistical residual. Although 2025 data suggested limited OTC impact on the market, much of this demand was likely met from existing stocks, causing the two main components of OTC demand to largely offset each other. Given the ongoing turbulent geopolitical environment, coupled with slowing growth and continued accommodative policies, an investment-friendly backdrop is expected to persist into 2026.
Central Banks: Net gold demand from central banks increased to 230 tons in Q4 2025, up 6% from the previous quarter's 218 tons. This strong performance capped a year of sustained buying activity, even as prices climbed to record highs. For much of 2025, central bank purchases were relatively moderate as they navigated rapidly rising prices—with gold setting multiple record highs during the year. Higher valuations of gold reserves appeared to prompt a more cautious approach from central banks. This indicates they are not insensitive to price dynamics, despite their unwavering long-term strategic interest in gold. The Q4 buying activity helped lift full-year demand to a substantial 863 tons. While falling short of the rare 1,000-ton levels seen in recent years, it remained significantly higher than the 2010-2021 annual average (473 tons). A total of 22 institutions reported increasing their gold reserves by approximately 1 ton or more during the year; seven institutions accounted for the vast majority of the buying. Furthermore, numerous smaller-scale purchases continued to underpin market demand.
Industrial: Gold demand in the technology sector remained largely flat for the full year, with stable performance in the fourth quarter. The AI boom continued to drive demand for gold in electronics (the dominant category in this sector), as high-speed computing accelerated the use of bonding wire, contacts, and interconnect materials. However, as manufacturing capacity shifted to meet AI-related demand, this boom created tension and divergence elsewhere in the electronics industry, crowding out production capacity for some components and driving sustained price increases. This exacerbated volatility in the consumer electronics sector—which faced a slow recovery and tariff uncertainty early in 2025, followed by supply shortages and sharp component price increases in the second half. This dynamic is likely to persist into 2026, impacting demand.
Investment Advice: Ongoing geopolitical conflicts, heightened tensions in the Middle East, unresolved issues in the Russia-Ukraine region, and the continued development of the Greenland situation are key factors. Globally, the acceleration of "de-dollarization" trends is collectively driving sustained gold purchases by central banks and investors. Long-term, concerns over global currencies and debt are benefiting gold as a trade aligned with debt and monetary easing. Total U.S. debt has surpassed $38.5 trillion, and the passage of the "Big and Beautiful" act is expected to increase the U.S. fiscal deficit by $3.4 trillion. The U.S. federal government's budget deficit for fiscal year 2025 was $1.8 trillion, showing little overall change compared to FY2024 despite a significant increase in tariff revenue. With fiscal deficits elevated in many countries globally and government bond yields rising amid a trend of interest rate cuts, reflecting concerns over debt scales, the outlook for future gold prices remains positive. Benefiting from rising gold prices, profit expectations for gold resource stocks are strengthening. Currently, valuations for gold equities are at relatively low levels, presenting opportunities for allocation. Beneficiary targets include: Chifeng Gold, Shanjin International, Zhongjin Gold, Shandong Gold, Western Gold, Xiaocheng Technology, Zhuye Group, Lingbao Gold, and China Gold International.
Risk warnings: 1) Unexpected changes in the U.S. economic situation; 2) Another shift in the Federal Reserve's stance on interest rate cuts; 3) Unexpected changes in the Russia-Ukraine conflict and Middle East situation.
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