Will gold continue to surge in the second half of the year?

　　Gold's performance in the first half of 2026 undoubtedly dealt a heavy blow to investors. By the end of May, London spot gold had only risen by 5.09% for the year, compared to a 25.32% increase in the same period of 2025 and a 12.82% increase in 2024. In this light, gold has clearly entered a headwind period since the start of this bull market cycle.

　　Those once-reliable bullish logics over the past few years—such as central bank gold purchases, rate cut expectations, and geopolitical risk premiums—seem to have lost their efficacy, and the market’s once-unshakable faith in gold is also starting to waver. However, when all the pessimistic factors are fully priced in, the market often approaches a turning point. Looking ahead to the second half of the year, we remain optimistic about gold—not out of faith, but because the combined forces that suppressed gold prices in the first half are gradually easing.

　　

　　

　　To understand the weak logic behind gold’s performance in the first half, we need to rewind back to the start of 2026. At that time, gold saw an exceptionally strong rally as London spot gold surged from around $4,300/oz straight up to a historic high of $5,598/oz.

　　This was a period of heightened market excitement, but the trading structure was extremely fragile. Observing the position increases of the world’s largest gold ETF—the SPDR Gold ETF—one could clearly see evidence of a rapid rush toward the top. Nearly all investors who believed gold would keep rising had already maxed out their positions. In such a crowded trade, it doesn’t take much structural bearishness—just a catalyst for a sentiment shift can trigger a sharp reversal.

　　The breaking point came quickly. At the end of January, US President Trump nominated Kevin Warsh as the next Federal Reserve Chair, and his previously public hawkish stance instantly shattered the market’s optimistic pricing around the rate cut path. Panic in the gold market erupted in a classic long squeeze, with gold prices reversing sharply from historical highs—London spot gold plummeted to as low as $4,402/oz in just three trading days, wiping out all high-leverage and weak-handed positions. Those with high leverage were the first to be liquidated, followed by risk-averse funds racing for the exit.

　　However, in retrospect, while this plunge was brutal, it didn’t shake the medium-term bull structure. In fact, after most of the weak hands and latecomer funds were flushed out, gold’s position structure became healthy again, allowing the slow bull trend to continue. As expected, in the next month, gold prices steadily recovered and reached as high as $5,419/oz by early March, just shy of the previous high. If the story ended here, 2026 would still likely be an acceptable year for gold bulls.

　　But the situation in the Middle East completely changed the scenario. At the end of February, the US and Israel launched military strikes against Iran, which then announced the closure of the Strait of Hormuz. This strait controls about 20% of global crude oil shipments, thus causing global oil prices to skyrocket. For gold, the negative impact was deeper than it seemed. The most direct effect came from inflation expectations: Spiking oil prices rapidly drove up US inflation expectations, causing US Treasury yields to jump and the US dollar index to strengthen. The combination of these two variables created a classic “double kill” environment for gold, leading to further corrections, with gold dropping to as low as $4,098/oz.

　　

　　One important support for the gold bull market in the past few years has been the unprecedented wave of gold buying by emerging market central banks. But this logic cracked in the face of a strong dollar. As the US dollar appreciated, emerging market currencies depreciated, and those central banks that had aggressively increased gold holdings found their main task had shifted from reserve diversification to exchange rate stabilization. Turkey is the most typical case, with its central bank selling gold for dollars to intervene and ease lira depreciation pressure. Similar patterns appeared in other emerging markets to varying degrees.

　　Meanwhile, to curb widening trade deficits and prevent excessive loss of foreign reserves, crucial gold importing and consuming countries like India and Malaysia announced higher gold import tariffs. Though these are seemingly trade-policy tweaks, in effect they add another obstacle to global physical demand for gold.

　　Private investors also exited en masse. The rise in US Treasury yields raised the opportunity cost of holding gold, leading US and European funds, which favor Treasuries, to withdraw. According to the World Gold Council, in February, global gold ETFs posted net purchases of 26.2 tons, down 94.3 tons from January’s 120.5 tons; Europe posted net sales of 13 tons, a decline of 25.7 tons from January. By March, global ETFs saw net outflows of 84.3 tons, with Europe cutting another 7.5 tons and North America selling a massive 87 tons—the largest net sale since December 2016.

　　More crucially was the liquidity crunch. At the onset of geopolitical conflict, global capital markets were extremely volatile, with investors pressed by margin calls and redemptions. Because gold had amassed considerable paper gains, it became one of the first assets sold off for liquidity. Yet as panic subsided and markets warmed, capital did not flow back to gold. Instead, the global technology stock boom driven by AI created powerful near-term returns, diverting capital away from gold yet again.

　　In summary, gold in the first half didn’t “lose” to an isolated negative factor, but to a convergence of negative scenarios. Among these: shattered rate-cut expectations, a stronger dollar, rising US Treasury yields, reversal in central bank purchases, and outflows into alternative assets. These intertwined and compounded, collectively suppressing gold’s first-half performance.

　　

　　Looking forward to the second half of the year, we remain bullish on gold for the following reasons.

　　

　　The key variable is the Strait of Hormuz. Currently, the US and Iran are close to reconciliation, increasing the likelihood that shipping will return to normal through the strait. Major international investment banks are generally bearish on oil prices, believing that the current oil supply-demand balance is still in oversupply, and once the Strait of Hormuz reopens, international oil prices could fall sharply from current levels. This means the biggest inflationary disruption of the first half is fading. Lower oil prices will directly drag down headline inflation, giving the Federal Reserve more room to cut rates. If this logic holds, US Treasury yields and the dollar index will likely decline from current highs.

　　

　　For central banks, once currency depreciation pressure lessens, the urgency for exchange rate stabilization subsides. Central banks in emerging markets that were forced to sell reserves can return to net buyers. After all, diversification remains a long-term strategical goal, merely temporarily interrupted by near-term priorities.

　　Looking at emerging economies like China, where the exchange rate remains strong, one can see that—excluding exchange rate volatility—central banks remain steadfastly bullish on gold. As of April 2026, China has increased its gold reserves for 18 consecutive months. In March and April, when gold was relatively weak, China bought aggressively, adding 420,000 ounces in those two months—much higher than the 160,000 ounces added in the same period of 2025.

　　Similarly, if local currencies appreciate, the rationale for India, Malaysia, and others to maintain high tariffs to curb trade deficits will weaken. Reducing or removing such restrictions may not be far off—and the marginal improvement in Asian physical gold demand will be immediate and apparent.

　　

　　Private investors’ behavior will also adapt accordingly. When US Treasury yields fall, the opportunity cost of holding gold drops, so gold's relative appeal in asset allocation rises. What’s more noteworthy is global tech stocks. After their powerful V-shaped recovery in the first half, valuations are now at lofty historical levels, making risk-reward less compelling.

　　At such a point, any marginal shift in long-term narrative or interest rate expectations could trigger capital rotation from overcrowded tech stocks into previously neglected assets. After a quiet first half, gold finds itself with “clean” positioning and reasonable valuation, well positioned to absorb such rotation.

　　At its core, gold's long-term logic has never been disproven. The global debt overhang, fragmentation of monetary credibility, and continued geopolitical risks remain steady underlying forces. The weak first half for gold seems more like a correction within a long-term trend—an adjustment driven by crowded trades and short-term macro headwinds, not an end to the trend itself.

　　As oil prices fall, rate cuts restart, the dollar weakens, US Treasury yields drop, central bank gold purchases resume, and private investment demand returns through the second half, gold has every opportunity to once again become one of the brightest assets in global capital markets.

　　

Editor: Zhu Henan