CITIC Securities has released a research report stating that since September, stronger-than-expected ETF and central bank buying have provided a sufficient hedge against liquidity-driven selling on the futures side. Over the past two weeks, gold prices have shown signs of stabilizing at the bottom, and the gold price floor is expected to rise compared to the end of June. Drawing a parallel to July when the gold sector rebounded ahead of gold prices, if the current gold price stabilizes, it will serve as an important signal for a rebound in the gold sector. Investors should pay attention to rebound opportunities in the gold sector. The main points from CITIC Securities are as follows:
The core factor behind the September gold price decline was liquidity tightening amid surging US Treasury yields. Looking back recently, spot gold prices fell from a peak of nearly $4,700 per ounce at the end of August to around $4,100 per ounce by the end of September, showing signs of bottom stabilization over the past two weeks. The selling pressure in September primarily came from the futures side (according to CFTC data, COMEX net long positions decreased by approximately 85 tonnes), and futures selling was mainly driven by the surge in US Treasury yields and liquidity liquidation (the 10-year Treasury yield rose from 4.75% at the end of August to 5.29% at the end of September). The rise in Treasury yields was partly due to tightening expectations amid inflation concerns from elevated oil prices under the protracted US-Iran conflict, and partly due to rising term premiums amid debt expansion concerns.
Investment demand and central bank allocation demand have shown stronger-than-expected resilience. Compared to the significant outflows on the futures side, ETF inflows (67 tonnes net inflow in September) and central bank gold purchases (China added 23 tonnes in September, setting a new record) demonstrated unexpected strength. Supported by these two buying forces, compared to the end of June (around $4,000 per ounce), gold prices have shown signs of a rising bottom ($4,100-$4,200 per ounce) over the past two weeks. Specifically:
1) On the ETF (investment attribute) side: According to World Gold Council data, global gold ETF holdings increased by 67 tonnes net in September. Despite a month-over-month decline (120 tonnes net increase in August) amid increased Fed tightening expectations, it still recorded net inflows, with increases fairly evenly distributed across North America, Europe, and Asia, reflecting stronger-than-expected investment demand resilience. Although the 10-year US Treasury real yield rose from 2.44% at the end of August to 2.93% at the end of September, on one hand, the unresolved US-Iran conflict and elevated oil prices pushed up medium-term inflation expectations (compared to the April forecast of 2.4%, the IMF's October forecast for US CPI growth in 2027 was revised up to 2.8%); on the other hand, concerns about US employment resilience persist (US non-farm payrolls added 29,000, far below the market expectation of 90,000, with the previous figure revised down from 162,000 to 133,000; after the data release, the market also lowered Fed rate hike expectations for October and December). Real interest rate expectations are unlikely to rise, which helps maintain strong gold investment demand.
2) On the central bank gold purchase (monetary attribute) side: According to People's Bank of China data, China's central bank net purchased 740,000 ounces (approximately 23 tonnes) of gold in September, continuing to increase by 90,000 ounces month-over-month, setting a new single-month high since the start of this gold purchase cycle. Since gold prices fell below $5,000 per ounce in March, China's central bank monthly net gold purchases have shown a continuous increase, rising from 160,000 ounces in March to 740,000 ounces in September. Considering that historically, gold purchase demand represented by China's central bank has generally shown strong forward-looking behavior and inertia, the bank believes that central bank gold purchases and their support for gold prices are expected to remain at a relatively high level.
The gold price bottom may be rising, and the gold sector is expected to lead. Regarding gold prices, first, ETF and central bank gold purchase buying may have already led to a rising gold price bottom; second, the outlook for gold prices still has positive conditions. If the US-Iran conflict eases before the US midterm elections, improved oil price expectations will create a foreseeable window for easing market tightening expectations, and the rise in US Treasury yields may moderate. This would be beneficial for gold price recovery from both liquidity (reduced futures selling) and liquidity expectation (continued ETF buying) perspectives. Regarding the gold sector, on the downside, referencing the bottom gold price of $4,000 per ounce for 2026 at the end of June, the bank estimates that the gold sector PE bottoms at around 15x. At the current assumed $4,200 per ounce for 2026/2027, the sector PE is 15x/12x, and the valuation bottom is expected to be validated again. On the upside, gold stocks typically rebound ahead of gold prices. Drawing a parallel to the gold price bottoming phase in July, the CITIC Gold Index has already rebounded more than 20% from its bottom. Therefore, if the current gold price stabilizes, it will become an important signal for a rebound in the gold sector.
Risk factors: Unexpected developments in the Middle East situation; continued rise in Fed rate hike expectations; unexpected developments in the US midterm elections; mine safety production and environmental protection issues leading to lower-than-expected enterprise output growth and higher-than-expected cost growth; operational risks of overseas assets for gold mining companies.
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