China Securities Co., Ltd .: gold will return to "fundamentals" after liquidity retreat, and the future price may be more stable.

China Securities Co., Ltd. released a research report stating that gold, which was popular in 2025, will become "quiet" in 2026 due to the US-Iran conflict. Although the price of gold remains strong, it has weakened significantly compared to other assets such as stocks, copper, and oil. The reason for the impact of the US-Iran game on gold prices is rooted in the US-Iran stir up inflation expectations, causing liquidity pricing to decline, and liquidity happens to be the reason for the sharp rise in gold prices since September last year. After the overpricing of liquidity retreats, gold will return to its "fundamentals" - order restructuring and de-dollarization leading central banks to buy gold. If it is said that the Russia-Ukraine conflict has torn apart the old global order, then the deeper geopolitical game is still advancing. Therefore, the fundamentals of gold have not ended. Benefiting from the conflict washing away the excessive pricing of liquidity, the future rise in gold prices may be more gradual. I. Deconstruction of the liquidity impact on the gold market in March 2026 The sharp drop in gold in March 2026 was not a isolated logic, but rather a strong linkage of assets caused by fluctuations in the global liquidity pricing main line. The core external trigger was the sharp escalation of the US-Iran conflict, especially Iran's threat to close the Strait of Hormuz, causing oil prices to soar. If the soaring energy costs compel the Federal Reserve to take more aggressive action, the main line of global liquidity pricing will fluctuate, and cross-asset linkage will strengthen. The overall market deleveraging also affected gold, with investors reducing positions to meet liquidity demands and reduce portfolio risk values (VaR), potentially exerting additional selling pressure on gold. Through analysis of data from 2000 to 2026, China Securities Co., Ltd. found that there is a significant time-varying feature in the correlation between gold and stocks and bonds, strongly related to the level of liquidity pressure. As liquidity pressure increases, traditional safe-haven logic hedging may undergo drastic mutations or even fail. In extreme liquidity states (with a low probability of occurrence), asset defense will fail, corresponding to the LSI index breaking through extreme values, making liquidity black holes easy to trigger a collapse of all assets. In the micro-mechanism, under extreme pressure, the nature of gold shifts from "safe-haven asset" to "highly liquid cash asset", typically involving margin calls and cross-asset risk-equity rebalancing. In general, a simple price drop does not necessarily involve margin calls, but when stock market panic (VIX) and gold volatility erupt simultaneously, we tend to believe that the market in March has experienced a round of "indiscriminate selling." The US stock VIX index surpassed the fear line of 31 in March; and the South Korean KOSPI index hit multiple circuit breakers in early March, with its implied volatility showing an exponential rise. The Chicago Board Options Exchange's Gold Volatility Index (GVZ) also surged to above 45 in late March, reaching historically high percentiles (near extreme levels of 2008 and other major crises). Synchronized with the large fluctuations in equity markets, the gold market in March exhibited a typical "liquidity storm". The global gold ETF saw a record outflow of funds in March, totaling $12 billion, halving the inflow amount in the first quarter to $12 billion. At the same time, gold selling driven by commodity trading advisors (CTAs) may have amplified the downward momentum. According to estimates from the World Gold Council, CTAs had generally high long positions in mid-March. It is said that when gold prices first fell below the 50/55-day moving average in seven months on March 16, CTAs quickly closed positions, leading to a significant drop in positions. Similar liquidity shocks in gold were also evident in the "Wash Trades" of 2008, 2020, and earlier this year. Despite the sharp price fluctuations, the core logic supporting this current gold bull market - the strategic loose liquidity environment and de-dollarization of sovereign credit assets - has not changed. In fact, the deepening of geopolitical fragmentation and games may strengthen gold's position as the ultimate value anchor in the medium to long term. II. Stability of the underlying logic of gold: Resilience of central bank gold purchases More central banks have started to purchase gold through non-LBMA channels since 2022, and the phenomenon of more "gold repatriation" can be seen, pointing to the fact that central bank gold purchases reflect a global shift from a US-led unipolar world to a more internationally diverse rule where China plays a higher role, synchronously reflecting a global order restructuring. The current US-Iran conflict is both a result and a constituent of global order restructuring, and may also be a catalyst for reshaping the new order in the future, further consolidating gold's reserve properties as a consensus. The recent attention on the Turkish central bank's gold sales is essentially emergency liquidity management under extreme domestic macro constraints, rather than strategic divestment from a sovereign asset allocation perspective. Turkey's uniqueness lies in the fact that gold accounts for a significantly higher percentage of its official reserves compared to other emerging markets, and gold is also its primary tool to hedge against exchange rate instability. To cope with the pressure on the exchange rate due to the energy shock, data released by the Turkish central bank shows that starting from the week of March 7, the Turkish central bank has been selling gold reserves for three consecutive weeks, totaling approximately 120 tons. Further breakdown of the data shows that in this instance of gold sales, the official reserves sold 100 tons, while commercial policy banks sold 20 tons of gold. The scale and volume of operations in March 2023 to stabilize the exchange rate were significant. The central bank uses tools such as gold leasing and forwards to enhance reserve income and manage liquidity, the logic and details of these operations are similar to the periodic selling of gold in foreign exchange position management, and do not conflict with the underlying logic of central bank strategic gold purchases since 2022. In addition, Federal Reserve data shows that central banks have increased their direct selling of US bonds to hedge against rising energy prices, further supporting that the recent market fluctuations are more driven by liquidity factors rather than changes in gold allocation strategies. It has been reported that since the outbreak of the Iran war on February 28, 2026, foreign central banks have sold $82 billion worth of US treasuries stored at the New York Fed's holdings. This move has pushed their custody holdings to the lowest level since 2012. The five weeks of consecutive selling marks the most sustained "retreat" from US government debt by official entities since the 2008 financial crisis. III. Stability of the underlying logic of gold: Deferral rather than disruption of the rate-cut cycle Due to real fiscal pressure considerations, the fiscal trajectory of the US federal government has entered an unprecedented fragile stage, where the fiscal situation fundamentally limits the space for monetary policy to maintain substantial tightening. In the 2025 fiscal year, the interest costs on the US national debt exceeded $970 billion for the first time, surpassing defense spending ($893 billion) and healthcare subsidies ($668.8 billion), second only to social security and medical insurance. The sharp increase in interest costs has created a dangerous feedback loop: in order to repay the high interest, the government must further borrow, and new debt will generate higher interest burdens in the current high-interest rate environment. This "debt spiral" reduces the tolerance of fiscal policy to tightening monetary policy to an ice point. The "absolute anchoring" of oil to the US dollar is loosening, also determining the policy space of the Federal Reserve, which is not comparable to the 1980s. When the primary buyers of oil are no longer the US, the economic logic sustaining the decades-long "security in exchange for dollar pricing" agreement is weakened, and also creates favorable conditions for major importers like China to push for settlements in non-dollar currencies such as the renminbi, challenging the fundamental basis of the existing system. IV. Gold outlook after the liquidity run: Returning to the underlying logic In the short term, after the liquidity run, the market will enter a phase of repricing, with the certainty of gold's right-sided signal still lying in the correction of tightening expectations. The liquidity shock in the gold market in Q1 2026 is essentially a stress test of the global macro system in an extreme environment of "high inflation, high leverage, high conflict". Safe-haven assets may temporarily be vulnerable in the face of depleted liquidity, but this does not mean the underlying logic of gold is broken. If the Middle East situation spirals out of control is not the baseline scenario, and even though the central oil price is facing systematic upward movement, once tightening expectations correct, gold will gradually transition to pricing for inflation in the future. In the medium to long term, global geopolitical games are no longer incidental "black swans", but structural footnotes of the global industry chain and monetary system shifting from "efficiency first" to "safety first", gold will continue to provide premium space independent of actual yield rates on US bonds. The far-reaching effects of the US-Iran situation are not just short-term oil price fluctuations, but also the regionalization and defensive redundancy of the global supply chain. In this environment, with the synchronised fragmentation of the global financial settlement system (such as the rise of alternative payment systems), the central price of gold will continue to benefit from the transition of the monetary system from a "US dollar hegemony" to a "diversified reserve" credit collapse cycle.