According to a research report from Sinolink Securities Co., Ltd., the recent rally in gold and silver is driven by the collapse of tech momentum and the rotation of capital into other sectors, rather than a confirmation of a new trend. Gold has not yet broken out of its downward channel, and improvements in central bank purchases, ETF inflows, and speculative positions remain limited. The second half of the year is expected to see a volatile recovery for gold, with underlying value supporting downside and requiring catalysts for upside, targeting a year-end range of $4,300–$4,500 per ounce.
A "False Bounce" in Focus
Since July, global equity assets have experienced a sharp rotation. AI hardware stocks suffered significant pullbacks due to emotional contagion from deleveraging in South Korea and profit-taking across various markets, prompting capital to rotate toward other sectors. In the U.S. market, funds sold the Philadelphia Semiconductor Index and bought the "Magnificent Seven." In Asia-Pacific, they sold the KOSPI, Nikkei, and STAR 50, and bought non-AI assets and the Hang Seng Tech Index. Interestingly, gold and base metals have also rebounded over the past two days. From July 20 to the present, spot gold has recovered 2.6%, while the more volatile silver has risen 4.5%. Gold stocks have rebounded even more sharply, with leading gold miners such as Zijin Mining Group Co., Ltd. and Shandong Gold Group Co., Ltd. rising 16.6% and 15.4%, respectively, over the same period.
Since March, the rise in oil prices has been a key driver of the sharp decline in gold and silver, fueled by fears of interest rate hikes. However, despite recent fluctuations in the U.S.-Iran situation pushing both oil prices and U.S. bond yields higher, why have gold and silver rebounded? Some voices suggest this is a turning point for gold, but we believe it is too early to talk about a reversal. Previously, sectors such as healthcare, commercial aerospace, high-dividend stocks, and agricultural products have already experienced periodic rotations. This is the result of the collapse of tech momentum and capital rotating outward, so it is not surprising that precious metals have taken the baton for a rebound. From a technical perspective, gold has not clearly broken out of the downward channel that has been in place since late April. From a capital flow perspective, it is true that momentum-driven funds and liquidity-sensitive funds in gold have rebounded. The world's largest gold ETF, SPDR Gold Trust, saw its holdings rise from 999 metric tons on July 17 to 1,008 metric tons on July 22. Speculative positions on COMEX gold futures have also rebounded recently, reaching a high of 194,000 contracts on July 4. As previously mentioned, a clear turning point for gold in the second half of the year would require signs of a restart of the AI bubble narrative, a restart of interest rate cut expectations, and a restart of concerns about the U.S. dollar's creditworthiness. However, none of these are currently clear.
Regarding the restart of the AI bubble narrative, after the rapid correction in hardware stocks, the market has indeed begun to shift from discussing insufficient demand to discussing investment returns and valuation constraints. However, after Google slightly raised its CY2026 capital expenditure plan to $195-205 billion overnight, U.S. stocks, including Micron, rebounded after hours, indicating that capital remains optimistic about the AI fundamentals. Therefore, we need to closely monitor the incremental information from next week's earnings reports of other U.S. cloud computing companies (Microsoft and Meta are scheduled for after-hours on July 29, Amazon for after-hours on July 30). The overall capital expenditure plans of these cloud computing companies will be the key factor determining whether the tech hardware rally can restart. Regarding the restart of interest rate cut expectations, the recent impact of rising oil prices on rate hike expectations seems to have diminished. From June 30 to the present, Brent crude oil prices have rebounded 32% from their lows, the 10-year U.S. real yield has risen by 15 basis points, and the 10-year breakeven inflation rate has risen by 6 basis points. However, the market's expectations for the number of Fed rate hikes in December have only increased from 1.1 to 1.3 times. Rate hike expectations have become somewhat desensitized to the oil price rebound, focusing more on reflecting medium- to long-term inflation expectations. Rate hike expectations may have already passed their most hawkish stage, which has, to some extent, catalyzed the rebound in gold, silver, and base metals.
Outlook for Gold in the Second Half of the Year
In the second half of the year, gold is expected to have underlying value supporting the downside, but requires catalysts for upside, with a year-end target of $4,300–$4,500 per ounce. A more likely scenario is a volatile recovery, with a new one-way uptrend still needing catalysts. As the technology sector transitions from a one-way rally to high-level divergence, capital allocation is expected to become more balanced between tech and gold. If inflation pressures ease further and expectations for Fed rate cuts decline, the pressure on gold from the U.S. dollar and real yields will also decrease. In the base case scenario, the U.S. dollar and real yields are likely to remain relatively high, making gold more valuable for allocation than for trend trading, and more suitable for gradual accumulation during pullbacks.
For gold to open up greater upside potential, strong catalysts are needed. First, the heating up of the AI bubble narrative, which is a medium-probability scenario. If the return on investment in tech capital expenditure is questioned, coupled with a marginal slowdown in the boost to economic growth from AI investment and a recovery in interest rate cut expectations, rebalancing funds could strengthen the odds for gold. Second, rising concerns about the U.S. dollar's creditworthiness, which is a low-probability, high-odds scenario. If, ahead of the midterm elections, U.S. fiscal, debt, or policy risks once again trigger a market repricing of the safety of U.S. dollar assets, gold could see stronger safe-haven and reserve demand. Overall, in the second half of the year, gold is suitable for balanced allocation with tech assets, and it is not advisable to have overly high expectations for a sharp short-term rally.
Risk Warning
Capital expenditures of overseas cloud computing companies may fall short of expectations. Oil prices and inflation expectations may rise more than anticipated. Global deleveraging of leveraged funds may exceed expectations.
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