Navigating the global shift in power dynamics
The World Gold Council has highlighted a profound transformation in the international political and economic landscape, moving from a unipolar system toward a multipolar one. Amid this shift, parts of the world are reverting to a "law of the jungle," while resource and political nationalism rise. In this context, gold, which is not issued by any single nation, carries no sovereign credit risk, and boasts high liquidity, is transitioning from a traditional "safe-haven asset" to a "strategic allocation," gradually becoming the new foundational asset for the multipolar era.
Gold as a strategic anchor during geopolitical risk
Since 2026, the global geopolitical environment has deteriorated further, with the Trump administration launching military actions against Venezuela and Iran. In fact, since the onset of the Russia-Ukraine war in 2022, the world has entered a period of heightened geopolitical risk. Looking at a longer timeline, 2022 may represent a key turning point, marking the start of the third wave of geopolitical risk since the end of the Cold War. Historical data shows that geopolitical risks tend to cluster; once a high-risk phase begins, it often takes a long time to return to long-term averages. Each previous period of high geopolitical risk has been accompanied by a reshaping of the international order and power dynamics. As the world accelerates toward multipolarity and East-West strategic competition deepens, this current round of global order restructuring and its associated geopolitical risks may persist longer than in the past.
Gold's performance in early 2026 puzzled many investors: why did the price fail to sustain a rally despite sharply escalating geopolitical risks, instead experiencing a notable correction? The World Gold Council noted that gold prices initially underwent a rare rapid surge. While expectations of a Federal Reserve rate cut and geopolitical risks provided fundamental support, the real drivers behind the short-term price spike were substantial inflows into gold ETFs and extremely bullish positioning in the options market, alongside rising retail participation. Meanwhile, constant news of record-high gold prices reinforced market optimism, further attracting both institutional and individual investors. However, as the US-Israel-Iran conflict pushed up oil prices and inflation risks, markets began to reassess the future interest rate path, leading to a global financial market adjustment. The heavy, crowded positions previously accumulated in the gold market were quickly unwound: triggered by price declines and by some investors selling gold assets to meet liquidity needs, together driving a sharp pullback in gold prices. Looking back, the large swings in gold prices reflected a rapid shift in investor sentiment from euphoria to caution. Over a longer historical perspective, gold's safe-haven attributes remain unchanged. During major geopolitical risk events, gold has consistently buffered portfolio volatility and played a crucial role in hedging against market stress.
Gold requires no sovereign endorsement: central banks continue to raise reserves
Since the Russia-Ukraine conflict, the US dollar-dominated international financial and settlement system has demonstrated the tail risks of unilateral financial sanctions amid extreme geopolitical tensions. The Global South and emerging market countries have begun to reassess the spillover effects of their dependence on a single financial system, as well as the liquidity and safety of their reserve assets. Central banks have gradually become major buyers in the gold market. In 2025, global central banks purchased a net 848 tonnes of gold, remaining above the ten-year average of 681 tonnes for the fifth consecutive year. The 2026 Central Bank Gold Reserves Survey shows that 89% of central banks expect global gold reserves to increase over the next 12 months. Meanwhile, the proportion of central banks anticipating an increase in their own gold holdings over the next 12 months reached a record 45%. Despite a phase correction in gold prices during the first half of the year, central bank gold demand remained strong at 345 tonnes, still above the near-decade average of 317 tonnes. The asymmetric buying behavior of central banks, increasing their purchases during gold price corrections, not only reflects their urgent need for reserve asset diversification and risk dispersion but also suggests the increased attractiveness of gold allocation at the current stage. This sustained central bank gold buying may provide long-term support for gold prices, stabilise the long-term price center, and underscore gold's long-term strategic allocation value.
Generating long-term returns: gold as a ballast in a declining rate environment
China's economy is currently undergoing a shift in growth drivers and structural adjustment. The second quarter saw a slight economic slowdown from the previous quarter, with cautious risk appetite from both households and corporations, and the deep adjustment in the real estate market is not yet complete. In the first half of the year, household loan growth continued to decline, with active deleveraging reflecting weak consumption propensity and a need for more time to restore confidence. To support economic growth and boost household confidence, China's accommodative monetary policy stance is unlikely to change in the short term. Furthermore, domestic interest rates may continue their long-term decline, which helps lower the opportunity cost of holding gold. Over the long term, gold has consistently delivered steady returns for investors. Historically, the renminbi gold price has achieved a compound annual return of 9% over the past 20 years, outperforming domestic stocks and bonds. Since the collapse of the Bretton Woods system in 1971 through to June 2026, the US dollar gold price has delivered an annualised return of 8.8%, surpassing global stocks and bonds.
Diversifying risk: hedging systemic risk to equity and bond portfolios
Currently, the wealth allocation behavior of the household sector is undergoing adjustment, with some funds clearly shifting from low-yield bank deposits to capital markets. As equity valuations are pushed higher, risks are also gradually accumulating, and the recent stock market has experienced deep asset price correction. Historical experience shows that gold, due to its low correlation with traditional risk assets like stocks, bonds, and foreign exchange, often plays a role in hedging portfolio risk and stabilising risk-adjusted returns during periods of significant market volatility. Appropriately increasing the proportion of gold in asset allocation not only diversifies wealth management channels but also enhances the resilience of asset allocation during periods of market turbulence.
Summary
The intensification of geopolitical conflicts is continuously enhancing the attractiveness of gold as a strategic allocation asset. Central bank gold holdings highlight the importance of moving away from single-system dependence in the international financial system and diversifying reserve assets. Gold allocation also provides the household sector with a new path for wealth management and a new channel to reduce overall asset allocation risk. The demand for wealth preservation, appreciation, and intergenerational transfer is growing among high-net-worth individuals. Gold possesses a proven value storage function across history, maintaining real purchasing power through inflationary cycles. During periods of economic and market turmoil, gold helps mitigate the impact of market volatility on asset allocation. Its high liquidity and global consensus make it an important vehicle for wealth transfer across sovereign borders. As the new foundational asset for the multipolar era, gold, with its scarcity, risk-hedging properties, absence of sovereign credit risk, ample liquidity, and high global recognition, provides long-term support for wealth preservation and security, becoming a key tool and vehicle for the value transfer of family wealth across generations.
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