The gold market has recently exhibited extreme volatility, with prices swinging wildly and frequent sharp movements. Compared to its peak of $5,598.75 per ounce, the gold price has retreated by 30%, entering a technical bear market.
In response to this price volatility, major banks have been tightening risk controls and actively deleveraging by intensively updating their precious metals trading rules, effectively cooling down the previously fervent gold investment activity. The key question for investors now is whether investing in gold is still a viable strategy.
Consulting industry insiders, the advice largely depends on an investor's time horizon. Short-term capital is not advised to bet on a rebound, while long-term funds are recommended for a dollar-cost averaging approach.
Furthermore, within the industry, what is considered the most profitable form of gold investment? Surprisingly, it's physical gold. The reasons for this will be explained in detail.
Banks Ramp Up Margin Requirements
On July 8th, a major announcement was issued, declaring a further increase in the margin ratio for individual precious metals deferred contracts, implementing the strictest risk control standards in the industry.
The notice specified that starting from the close of July 9, 2026, the standard trading margin ratio for key deferred contracts like Au(T+D), mAu(T+D), and Ag(T+D) for individual clients would be sharply raised from 140% to 190%. The forced liquidation margin ratio would increase from 120% to 170%. This is currently the highest margin requirement among banks, significantly raising the risk control threshold.
The bank specifically warned investors that this adjustment would directly impact account margin sufficiency. In simple terms, for the same position, more capital is now required, drastically limiting an account's ability to withstand volatility. If the margin balance becomes insufficient and triggers forced liquidation conditions, the bank will execute a forced close-out, locking in losses for the investor with no room for buffer.
Tightening precious metals risk controls and deleveraging investments has become an industry-wide consensus. Following suit in June, several other banks intensively issued adjustment notices, collectively upgrading their risk management rules.
Effective June 29th, one bank raised the margin ratio for gold and silver deferred contracts directly from 40% to 120%, significantly increasing the trading barrier.
On June 22nd, three banks acted simultaneously: one adjusted gold and silver deferred contract margins from 100% to 140%; another raised gold deferred contract margins from 99.9% to 120%; and a third uniformly increased margins for all gold and silver deferred contracts to 120%.
In addition, other major banks have also raised their precious metals margin ratios to the range of 100% to 120%. A 120% margin ratio has now become the standard in the banking sector, while the exceptionally high 190% ratio set a new benchmark for the industry's risk floor.
Industry insiders state that the core reason for banks collectively tightening risk controls and raising margin requirements is the recent period of extreme gold price volatility. The price has retreated significantly from its yearly highs, with daily swings of hundreds of dollars and consecutive one-sided plunges becoming commonplace.
Even a 100% margin requirement eliminates trading leverage, but under such extreme market conditions, risks of chain-reaction forced liquidations and slippage leading to account deficits persist. If an investor's account incurs a deficit, the bank acting as the clearing agent must cover the shortfall, facing substantial bad debt pressure.
In essence, banks are tightening rules because market risks have become too high, to the point where even institutions are unwilling to underwrite them.
Investors should understand that banks, as professional institutions, are inherently more sensitive to risk than the average investor. Therefore, their successive increases in margin ratios signal that short-term gold has accumulated significant risk, and caution is advised.
Wall Street Shifts to a Bearish Stance
Behind the intensive risk control upgrades by banks lies a fundamental weakening of gold's outlook, with overseas institutions collectively turning bearish, completely reversing their previous bullish logic.
A recent report joined the bearish camp, lowering its 2026 average gold price forecast by 6.3% to $4,560 per ounce, citing the negative impact of a stronger US dollar and rising interest rates.
Previously, another major bank also slashed its gold price forecasts by up to 22%, lowering its Q3 target to $4,300/oz and its Q4 target to $4,800/oz, indicating a significantly weaker outlook.
Furthermore, seven other international institutions have successively lowered their 2026 gold price targets, with reductions reaching up to $500 per ounce.
More notably, the current decline in spot gold has already breached the lower bounds of several institutions' pessimistic forecasts, indicating weakness far exceeding market expectations.
On the fund management side, a major asset manager stated in its Q3 2026 macro strategy report that gold remains pressured in the short term by tightening liquidity, but this is already largely priced in. It awaits a potential phase of dollar weakness to drive gold higher. While gold faces headwinds from continued tight dollar liquidity, market sentiment suggests tightening expectations are relatively well-absorbed. Once financial conditions show negative feedback and inflation peaks, a period of dollar weakness could benefit gold.
However, the report also issued a risk warning: recent gold volatility has been high, and investing in gold funds requires full recognition of risks and prudent decision-making based on one's own risk tolerance. It also advised continued monitoring of global macroeconomic trends, central bank gold purchases, and relevant policy developments.
The capital flow side also presents bearish signals. According to industry data, global gold ETFs experienced massive outflows in June, with a net outflow of $8.9 billion for the month. Global gold ETF assets under management fell 13% month-on-month to $526 billion.
Even though Asian inflows provided some support in the first half, resulting in a slight overall net inflow of $8 billion for global ETFs, the concentrated outflows in June confirm that capital is accelerating its exit from the gold market.
Assessing the Bottom
Faced with gold's sharp decline, the question is whether to buy the dip or continue waiting. This depends on whether the correction is sufficient. How much of a drop constitutes a sufficient adjustment?
Examining the annual performance of spot gold since 1994 shows that while gold has experienced ups and downs, its overall trend has been upward. Based on this trend, investors need not be overly concerned; with a long enough holding period, there is always an opportunity to break even and profit.
The most typical adjustment occurred from 2013 to 2015. In 2013, gold started at $1,676/oz, peaked at $1,697/oz, and fell to $1,205/oz by year-end, declining 28.04% for the year. This was not the end. In 2014, gold fell another 1.76%, and in 2015, it dropped a further 10.4%, only turning positive in 2016.
Overall, gold fell 36.65% over those three years, and trading volume indeed shrank year after year during that period.
Looking at the current situation, gold trading volume remains at high levels. Investors considering buying the dip should first ask themselves about their investment horizon.
For those seeking short-term rebounds, it's advisable to exercise restraint and wait for gold to stabilize.
For those with a long-term perspective, such as 10 years or more, a gradual entry via dollar-cost averaging is recommended, requiring patience. Historical gold price movements suggest that with a sufficiently long holding period, profits are achievable.
Choosing the Best Investment Method
A professional gold investor shared that, ultimately, the most profitable approach has been investing in physical gold. The primary reason is the weaker liquidity of physical assets; they are harder to convert to cash compared to other methods. This naturally leads investors to hold them for the longest duration without frequent trading. While some investment methods offer more flexibility, the constant buying and selling makes it impossible to perfectly time the market every time. In the end, a buy-and-hold strategy often proves to be the most effective.
Comments