Gold has experienced three distinct phases of trend shifts so far in 2026, but these shifts do not represent a fundamental reconstruction of long-term pricing logic. Instead, they reflect intense short-cycle liquidity battles. The stable narrative this year is anchored by central bank purchases and reserve diversification as long-term allocation forces, while the primary uncertainties stem from the liquidity pathways shaped by geopolitical conflicts and policy shocks. Since July, gold has completed its first round of recovery driven by corrections to fiscal constraints and tightening expectations, but the slope of a second upward trend will require confirmation of substantive easing from the Federal Reserve.

Looking through short-term inflation and employment data, the Fed's monetary policy is likely to remain easier rather than tighter amid ongoing technology competition. This policy asymmetry suggests that the current gold bull cycle is not yet over.

The first phase

From January to February, gold extended its prior upward trend and accelerated to new highs. Global gold ETFs saw net additions of 120 tonnes in January, pushing holdings to record levels, with Asia and North America adding 62 tonnes and 43 tonnes respectively. Options trading and market volatility picked up sharply, with frequent large intraday swings by late January.

The second phase

From March to June, gold entered a sustained correction from elevated levels. Fund flows turned negative, with global gold ETFs recording net outflows of 45 tonnes in the second quarter, led by North America. Chinese investment funds and trend-following Western capital also trimmed gold positions. By the end of June, both prices and positioning had cooled considerably from the year's peaks.

The third phase

Since July, gold has bottomed near $4,000–$4,200 per ounce and started its first repair rally. Ahead of the sharp rebound in August, fund flows improved first. Global gold ETFs attracted about $3 billion in net inflows in July, adding 23 tonnes, ending two straight months of outflows. Europe led the inflows, Asia continued to add, and North America shifted from outflows to modest inflows.

Short-cycle liquidity, not long-term logic, drives the swings

Gold's short-term volatility is mainly driven by liquidity conditions and private-sector positioning, such as ETF flows, which determine the slope and amplitude of moves. Medium-to-long-term trends depend more on US fiscal credibility, global monetary system changes, and central bank reserve diversification, which set the valuation anchor and downside support. The relatively stable forces this year are the US fiscal deficit, high interest burdens, and central bank buying. The true uncertainty lies in the monetary liquidity path, which is shaped by geopolitical tensions and policy shifts that change market perceptions of the Fed's reaction function.

In the first phase, geopolitical tensions pushed oil prices higher, strengthening inflation pressure and triggering gold's first pullback from March to April. In the second phase, policy changes altered market views of the Fed's reaction function, leading to a second decline in June.

July's key signal: easing tightening expectations meet credit narratives

The core signal in July was not the start of an easing cycle, but that high rates alone can no longer suppress gold. Two forces shaped pricing. First, cooling employment, inflation, and consumption began to correct expectations of sustained tightening, reducing short-cycle liquidity pressure. Second, prolonged geopolitical tensions, fiscal deficits, and rising term premiums on US Treasuries increased demand for credit hedges. Together, these forces shifted gold's recovery toward a confluence of liquidity and credit logic.

US employment conditions have weakened notably, with hiring demand nearly stalled. Wage and labor supply indicators also point to a loosening jobs market. Inflation pressures eased marginally in July, with no further spread of secondary-inflation risks. Consumption data reinforced signals of economic cooling. Following these data releases, markets began reassessing the single-minded tightening stance. As of August 17, the implied probability of a September rate hike had fallen to roughly 33%, down from 51.2% a month earlier.

Geopolitical conflicts have shifted from one-off shocks into persistent energy, fiscal, and policy constraints. On July 8, the announcement that the US-Iran memorandum had been "terminated" led to continued disruptions in the Strait of Hormuz. Repeated military and economic confrontations have transformed the conflict from a single event into ongoing constraints. This prolonged geopolitical tension supports gold through three channels. First, persistently high energy prices increase fiscal pressure on governments maintaining growth and household costs. Second, rising spending on defense, energy security, and supply chain restructuring expands fiscal deficits and bond issuance needs. Third, when long-end rates rise and threaten fiscal stability and financial conditions, markets increase expectations for policy intervention, liquidity support, and potential future easing.

US Treasury term premiums rose again in July, signaling renewed currency-credit risk. The New York Fed's ACM model shows the 10-year term premium rising from roughly 0.51% on June 30 to about 0.84% on July 31, an increase of about 33 basis points in one month, and remaining elevated at 0.80%–0.90% into mid-August, approaching 0.90% on August 17. This means that even with cooling employment and inflation, long-end yields must still incorporate higher duration-risk compensation. The US Treasury subsequently increased its single-operation liquidity support repurchase size for 10-30 year bonds from $2 billion to at least $4 billion, reflecting heightened official sensitivity to long-end market liquidity and term risk. This operation is not quantitative easing or debt monetization, but it shows that fiscal and monetary constraints are growing when long-end rates rise. For gold, this is significant: if long-end rates rise from growth and real-return improvements, gold typically suffers. But if they rise from fiscal deficits, bond supply, and policy-credit risk, gold and long-end yields can move higher together.

Central bank buying and reserve diversification provide underlying support

Amid deepening geopolitical rivalry, central banks are shifting toward more proactive strategic allocation of gold. Second-quarter data confirm that the long-term buying trend has not reversed. Global central banks purchased a net 289 tonnes in Q2, nearly four times higher than the revised 57 tonnes in Q1, and the highest Q2 on record. Poland's central bank added 51 tonnes, China's central bank added 33 tonnes, while Uzbekistan, Kazakhstan, Jordan, and the Czech Republic also continued net purchases.

Evidence of strategic gold allocation continued in 2026 through repatriation trends. India significantly increased domestic gold storage, France completed standardized swaps of New York gold to Paris custody, and discussions in Germany and Venezuela over overseas control intensified. Hong Kong's gold market infrastructure developments also practically confirm gold's rising strategic attributes. Together, central bank purchases, reserve repatriation, and Hong Kong's gold infrastructure all point to one trend: gold is transitioning from a passive historical legacy on central bank balance sheets to an actively managed strategic reserve asset.

Fiscal credibility sets direction, monetary policy sets the slope

As the US fiscal problem transitions from long-term expectations to short-term market constraints, gold has likely completed its first valuation repair, moving from "excessive tightening pricing" to "relative balance between fiscal and monetary direction." Since July, gold has recovered from around $4,000 to $4,600 per ounce. The essence is not that easing has been delivered, but that markets have shifted from single-mindedly pricing "high rates, strong dollar, sustained tightening" to incorporating economic cooling, fiscal-credit risk, and the possibility of a policy pivot.

After this first repair phase, fiscal credibility and central bank buying can still lift gold's equilibrium and limit downside, but they cannot sustainably determine the short-term upward slope. A second trend up will require confirmation of substantive easing. Three key signals to watch: first, whether the labor market continues to cool, shifting policy focus from inflation back to employment; second, whether inflation remains contained and the Fed tolerates some energy-driven inflation; third, whether North American gold ETFs shift from tentative inflows to sustained net buying. Together, these determine whether easing expectations convert into policy reality and capital confirmation.

Looking through short-term inflation and employment data, the Fed's policy orientation serves the basic interests of the US economy and financial system. Amid technology competition, the medium-to-long-term theme that monetary policy is easier-not-tighter determines that the current gold uptrend has not concluded. The Fed's policy backdrop is designed to serve US fundamental interests. What is called Fed independence and the monetary framework is adjusted over time, with the 1970s being a prime example. For the US, maintaining technological leadership is paramount to ensure monetary and financial stability, followed by attention to social stability risks contained in K-shaped divergence, and only then inflation levels. Once one understands the US model, its current difficulties, and the Fed's fundamental stance, a medium-to-long-term thesis emerges: amid technology competition, the Fed's monetary policy is easier-not-tighter. This policy asymmetry constitutes the policy foundation for an unfinished gold bull market. Technology competition is raising US dependence on long-term capital and loose financial conditions. Monetary policy can tighten cyclically but cannot indefinitely allow real rates and financing costs to rise unchecked.

Risk warnings

The sustainability of consumption recovery remains uncertain. Whether it stays in low-level oscillation or moves toward normalized growth requires close tracking. If consumption remains weak, the economic recovery will lack momentum. The property sector's improvement is also uncertain. The downcycle has persisted for a long time, with a brief rebound currently appearing, though many indicators remain negative. Whether this recovery can be sustained needs observation. Due to data availability limitations, there is risk of incomplete statistics, model failure leading to measurement errors, and data statistical errors. The impact of tight monetary policies in Europe and the US could exceed expectations, dragging on global growth and asset prices. Geopolitical conflicts remain uncertain, disrupting global growth prospects and market risk appetite.