Gold prices are continuing their corrective phase. According to Wind data, as of the close on June 19, the international gold price, represented by the London spot price, fell for a third consecutive trading day, dropping back below the $4,200 per ounce level. The daily decline reached 1.46%, bringing the year-to-date loss to 3.72%.
Concurrently, domestic gold jewelry prices in China have also retreated to around 1,260 yuan per gram. This represents a drop of approximately 450 yuan per gram from the year's high, a decrease of about 25%. For instance, data from Jintouwang shows that Chow Tai Fook's gold jewelry price was quoted at 1,706 yuan per gram on January 29, marking the year's peak. By June 20, the price was quoted at 1,261 yuan per gram, equating to a reduction of 445 yuan per gram.
Drivers Behind the Decline
Fundamentally, the latest downturn in gold prices is primarily attributed to shifting expectations regarding U.S. Federal Reserve monetary policy. In the early hours of June 18 Beijing time, the Fed announced its decision to maintain the federal funds rate target range between 3.5% and 3.75%. While this decision was widely anticipated by the market, the Summary of Economic Projections released by the Fed conveyed a distinctly hawkish signal. Specifically, the median projection for the federal funds rate in 2026 by Fed officials was raised to 3.8% from the 3.4% forecast in March, indicating officials' expectation for one interest rate hike this year.
Market expectations for the Fed pausing rate cuts, or even implementing a rate hike within the year, subsequently increased. Current predictions from the FedWatch tool suggest a 38.5% probability that the Fed will raise rates by 25 basis points in July. As a non-yielding asset, gold faces higher opportunity costs for holders when market interest rates rise, thereby putting downward pressure on its price.
Long-Term Support Factors
However, despite short-term pressure, gold may still find long-term support. On June 16, the World Gold Council released its "2026 Central Bank Gold Reserves Survey." The survey indicates that global central bank demand for gold continues to exhibit strong momentum.
Specifically, 89% of the surveyed central bank reserve managers anticipate that global central bank gold reserves will continue to increase over the next 12 months. This confidence is also reflected in the reserve plans of the banks themselves, with 45% of the surveyed managers stating they expect their institutions to increase gold reserves in the coming year—a record-high proportion.
What impact will this sustained robust demand from global central banks have on gold prices? Senior Investment Advisor Zhu Hualei from Shaanxi Jufeng Investment Information Co., Ltd. stated that this will create long-term, rigid physical demand, which will compress the downside for gold prices, elevate the medium-to-long-term price center, and solidify a price floor for gold. Nevertheless, this is unlikely to fully offset the short-term impacts from factors such as fluctuations in the U.S. dollar and Treasury yields.
Gao Zhengyang, a special researcher at Sushang Bank, echoed this view, noting that from a medium-to-long-term perspective, gold purchases by global central banks represent the most stable pillar of support on the demand side. This type of demand, based on the strategic goal of reserve diversification, possesses strong continuity and systematic nature, largely unaffected by short-term price volatility. This helps reinforce market confidence in gold's long-term value.
Gold's Strategic Role and Central Bank Motivations
It is worth noting that the survey also highlights the growing strategic importance of gold in central bank reserve portfolios. Currently, 93% of the surveyed central banks reported holding gold, a higher proportion than last year's 81%. Meanwhile, surveyed banks are less optimistic about the future role of the U.S. dollar in global reserves, with 74% expecting its share to decline over the next five years.
"Gold, as a non-sovereign credit asset, derives its value independently of any single country's credit backing. Against a backdrop of rising global uncertainty, gold can effectively serve its safe-haven function and help stabilize the value of reserve assets," Gao Zhengyang stated. He added that concurrently, the expanding U.S. debt burden is intensifying market concerns over dollar credit, prompting central banks worldwide to gradually adjust their foreign exchange reserve structures, shifting from a past heavy reliance on dollar-denominated assets towards more diversified allocations. Within this trend, gold has become a crucial component of central banks' long-term strategic asset allocation.
The survey further reveals that when asked about the primary reasons for holding gold, 90% of the surveyed central banks cited its strong performance during crises—a record high for this factor. Other key reasons included gold's role as a long-term store of value (84%) and an effective tool for portfolio diversification (83%).
"Gold, as a long-term store of value, aligns with the global central banks' strategy for reserve diversification, making it a favored asset. Simultaneously, compounded international geopolitical risks and pressure on U.S. dollar credit further accentuate gold's unique attributes of inflation hedging, diversifying foreign exchange reserve risks, and preserving value during crises," Zhu Hualei concluded.
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