Overall, with prices at relatively low levels, expectations for central bank support are strong.
On May 18, China Post Securities released a research report on the gold industry, indicating that gold prices are expected to reach new highs following a correction, with optimistic prospects for the sector's sustained performance.
The gold sector demonstrated excellent performance in 2025 and Q1 2026. Gold prices surged significantly in 2025, reaching a historic high in January 2026. The strong performance of gold prices contributed to robust overall results for the gold sector. In 2025, annual financial reports of gold companies showed dual growth in operating revenue and net profit attributable to shareholders. Companies primarily engaged in self-selected mining experienced profit growth exceeding their revenue growth, such as Shandong Gold International, Sichuan Gold, Chifeng Gold, and Zijin Gold International. Conversely, companies with a higher proportion of smelting operations saw profit growth potentially lower than their revenue growth, such as Hunan Gold and Hengbang Shares.
In Q1 2026, London gold prices briefly surged above $5,500 per ounce, setting a new record high. Although prices subsequently retreated, Shanghai gold remained consistently above 1,000 yuan per gram. In March 2026, conflicts in the Middle East led to a temporary tightening of global liquidity, coupled with delayed expectations for interest rate cuts and some central banks selling gold periodically, resulting in significant price volatility. However, the People's Bank of China's substantial gold purchases during the price decline underscored the long-term allocation value of gold.
Following the gold price adjustment, the People's Bank of China accelerated its gold purchases. In April 2026, the central bank continued to increase its gold holdings, marking the 18th consecutive month of accumulation since resuming purchases in November 2024.
As of April 2026, the People's Bank of China held a total of 2,321 tons of gold. Notably, during April, when prices experienced a significant correction (London gold once fell below $4,100 per ounce), the central bank purchased over 8 tons of gold. In March 2026, amid escalating Middle East conflicts, the central bank's purchases approached 5 tons. Overall, with prices at relatively low levels, expectations for central bank support remain strong.
U.S. debt pressures persist, and selling pressure from trading positions has largely subsided. If appointed as Federal Reserve Chair, Waller's policy expectations of rate cuts coupled with balance sheet reduction could further diminish demand for U.S. Treasuries, potentially strengthening gold's role as an alternative to U.S. debt. The U.S. government's deficit rate remains elevated, with an annualized rate still above 7% in Q1 2026. The situation in the Middle East may further increase fiscal expenditures, making it difficult to reduce the deficit rate in the short term amid high interest rates. Holdings in U.S. gold ETFs have declined with rising interest rates but have now stabilized above 1,030 tons, indicating a pause in short-term selling by trading positions.
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