A recent research report from 东海证券 indicates that central bank gold purchases and global allocation demand have not reversed course. The current decline is more characteristic of a deep correction within a bull market, with the long-term upward structure remaining unbroken. The firm believes this gold price drop represents a structural correction within a prolonged bull run and holds a bullish view on gold's medium-to-long-term price performance, recommending investors accumulate in tranches during dips. It suggests gradually increasing positions during price pullbacks triggered by rebounds in real interest rates or the US dollar index.
The report outlines a transition in gold's pricing mechanism, with the market now in a phase where short-term prices are driven by interest rates while medium-term dynamics hinge on central bank activity. The 10-year TIPS real yield remains elevated within the 2.39%–2.45% range, but with US inflation trending down and the dollar index retreating below 100, pressure from the rates side is easing marginally. Global central bank gold purchases rebounded from 56.5 tonnes in Q1 2026 to 288.9 tonnes in Q2, marking a 62.4% year-on-year increase and a 411.1% quarter-on-quarter surge. Combined with the return of ETF and futures fund flows, strategic allocation demand is being restored. Meanwhile, gold's supply elasticity remains low, and demand is shifting from jewelry consumption toward investment allocation and official reserves, with central banks and institutional funds steadily gaining greater marginal pricing power.
The dollar-US Treasury system is encountering stronger balance sheet constraints. US fiscal financing and private credit expansion create dollar liabilities, while Treasury yields, term premiums, and hedging costs influence global asset allocation. A stronger dollar exacerbates debt repayment pressure for overseas borrowers. As of end-2025, dollar credit owed by non-bank borrowers outside the US stood at approximately $14.3 trillion. Dollar credit expansion does not necessarily imply accommodative financial conditions; high interest rates, a strong dollar, and credit expansion can coexist, amplifying global financing strains.
The ability of overseas demand to suppress US Treasury yields has weakened notably. Non-Fed-held marketable medium- and long-term Treasuries rose from $2.92 trillion in 2007 to $20.48 trillion by June 2026. A $100 billion overseas purchase now corresponds to a market share of just 0.49%, down from 3.43%. The short-term suppressive effect of a comparable-sized purchase on the 5-year yield has dropped from roughly 46 basis points to under 7 basis points, with the long-term effect falling to about 3 basis points. Updated samples also fail to robustly identify a relationship where increased foreign holdings depress term premiums.
The rising fragility of the US Treasury system reinforces gold's role as a store of value. The CBO projects a US fiscal deficit of approximately $1.9 trillion for FY2026, equivalent to 5.8% of GDP, with public debt held at around 101% of GDP. The cycle of high deficits, elevated interest costs, and increased issuance continues to intensify. Treasury supply is growing faster than market intermediary capacity, and highly leveraged basis trades could amplify market volatility during funding tightening. Between 2000 and 2025, gold's share of global official reserve market value rose from 11.35% to 24.71%, while the dollar's share of foreign exchange reserves fell from 69.74% to 56.42%. By 2025, the market value of overseas official gold holdings had come close to the scale of foreign official long-term Treasury holdings. The dollar's transactional and financing dominance has not yet been supplanted, but gold's marginal substitution for the dollar-Treasury complex in terms of long-term value storage and tail-risk insurance is already underway.
Risk warnings include a resurgence in US inflation, persistently higher real interest rates, an unexpectedly strong dollar, weaker-than-expected central bank gold purchases, and easing geopolitical tensions.