Gold prices have regained their upward momentum in recent weeks, reversing the downward trend seen earlier this year. According to Wind data, on August 24, the international spot gold price, measured by the London gold spot price, hit an intraday high of $4,659.96 per ounce, climbing nearly 1% that day to reach its highest level since May this year. Over a longer timeframe, the London gold spot price has risen 13.89% since the start of August, as of the close on August 21. This marks a stark contrast to the first half of the year, when the London gold spot price experienced a sustained pullback after reaching an all-time high in late January, ultimately recording a decline of 7.20%.

International gold futures have followed suit, with COMEX gold futures surging to an intraday high of $4,716.7 per ounce on August 24, breaking through the $4,700 per ounce threshold. As of the close on August 21, futures have also gained 13.50% since the beginning of August. The question arises: what is driving gold prices upward?

Liu Siyuan, chief analyst at Lingxiu Finance, attributes the short-term rally primarily to market reassessment of US Treasury real yields and dollar credit. Expectations of dollar depreciation have triggered a passive rise in gold prices. Indeed, as gold prices have regained strength, the US dollar index has turned downward, under pressure since late July. Between July 27 and August 21, the dollar index fell 2.58%, retreating from the 101-point level to its current range around 99 points.

The medium-to-long-term floor for gold prices is underpinned by structural forces including US fiscal credibility and global central bank gold purchases, while short-term fluctuations remain influenced by real yields, the dollar index, and liquidity conditions, says Qu Rui, senior deputy director of research and development at Golden Credit Rating. Liu Siyuan adds that sustained gold buying by global central banks provides medium-to-long-term support for physical gold demand. With the Federal Reserve's rate-cutting cycle still incomplete, declining real yields and dollar credit reassessment are providing additional upward momentum.

Looking at the second half of the year from a capital flow perspective, Caitong Securities' recent research report suggests that gold's liquidity picture is improving marginally. The unchanged long-term trend of global central bank gold purchases, potential declines in real yields driving ETF inflows, and speculative funds rebuilding positions at lower levels collectively support gold prices. The report also notes that whenever the dollar's global reserve share declines, gold's reserve share tends to rise significantly. Central bank gold-buying trends remain robust, with emerging markets still having considerable room to increase purchases.

Looking ahead, Qu Rui outlines three scenarios for gold prices. In the base case, with US inflation slowly easing and the Fed maintaining high rates, gold's price center could gradually shift upward toward $4,500 per ounce. In an optimistic scenario, should the Fed begin its rate-cutting cycle and global central banks accelerate gold purchases, prices could return above $5,000 per ounce. In a pessimistic scenario, if international geopolitical conflicts escalate, driving oil prices higher, inflation rebounds, and liquidity tightens, gold could experience a second dip to $3,800 per ounce.