GF Securities: Three driving factors - macro narrative, fundamentals, and market liquidity. Still long on gold in the long term.

GF SEC releases research report stating that after a deep retracement in October, the price of gold has rebounded, and short-term market sentiment has improved. The price of gold has retraced, but there are still three main reasons for being bullish on gold in the long term: Macro narrative: Debt crisis may reshape global order. The expansion of the U.S. twin deficits forces it to shift the crisis externally. Fundamental factors: The decline in real interest rates will marginally support the gold price. The Fed cut rates in December and adopted a dovish stance, and began expanding its balance sheet, with continued monetary easing overlapping with the resurgence of inflation, providing strong support for the gold price. Funding side: ETF funds and central bank gold purchases remain the drivers behind the scenes. The main points of GF SEC are as follows: Recent trend in gold: Since August, London spot gold has reached a high of $4380 per ounce, and net long positions in derivatives + massive inflow of ETFs are the main driving factors of this round of market trend. After a deep retracement in October, the price of gold has rebounded, and short-term market sentiment has improved: (1) the pattern of net long positions in derivatives + ETF inflow remains unchanged; (2) the implied volatility of gold options has fallen from previous highs to near the six-month average, releasing excessive upward pressure; (3) the geopolitical situation is showing a mix of "partial relaxation and multiple heating up", with a slight increase in risk aversion sentiment. Three main reasons for being bullish on gold despite the retracement in the gold price: 1. Macro narrative: Debt crisis may reshape global order. Since the pandemic, the U.S. debt and basic fiscal deficit have continued to expand, with the federal government debt level reaching historic highs and becoming more diversified. The expansion of the U.S. twin deficits forces it to shift the crisis externally, with significant uncertainty in global economic policies in recent years and geopolitical risks on the rise. If the debt issue is not resolved, gold and technology will continue to gain upward momentum in the medium to long term. 2. Fundamental factors: The decline in real interest rates will marginally support the gold price. After 2022, the negative correlation between real interest rates and gold prices has somewhat weakened, but not disappeared. The decline in real interest rates still provides marginal support for the gold price. The Fed cut rates in December and adopted a dovish stance, began expanding its balance sheet, with continued monetary easing overlapping with the resurgence of inflation, providing strong support for the gold price. 3. Funding side: ETF funds and central bank gold purchases remain the drivers behind the scenes. (1) In terms of ETFs, the inflow of global gold ETF funds continued in the fourth quarter of 2025. In November, Asian funds replaced North America as the new dominant force, driving the total holdings of global gold ETFs to a historic high, with a net increase of over 700 tons for the year, expected to set a record for annual holding growth; (2) From the perspective of central bank gold purchases, the intensity of central banks increasing their gold holdings due to long-term debt crises leading to the restructuring of the global monetary credit system, de-dollarization and anti-globalization trends continues to increase. Based on the above factors, the results show that central bank gold purchases since 2022 have supported the gold price, and ETF inflows have driven the gold price higher, with short-term gold still having upside potential. Future trading rhythm of gold: Currently, the price of gold is not low, but after the October adjustment, the short-term risks are small. The two major stimulating factors in the future are the non-farm payroll data for November and the extent of Japan's rate hike, and it is recommended to pay attention to short-term investment opportunities in London gold. Risk warning: The risk of index tracking error and tracking deviation in ETFs may occur; Geopolitical conflicts exceeding expectations may lead to higher-than-expected global inflation pressures; Overseas inflation and the resilience of the U.S. economy may result in global liquidity easing (timing of Fed rate cuts, magnitude of U.S. bond rate declines) lower than expected; Domestic growth stabilization policies are less than expected, resulting in weak economic recovery and risks of index performance below expectations, etc.