Western Securities Co., Ltd. has released a research report indicating that a sharp decline in gold prices would directly reduce the net realizable value of gold-related inventories, potentially triggering significant inventory write-down losses. The market is gradually adjusting its hawkish expectations, and gold prices have begun to recover; moreover, gold stands to benefit from the exposure of U.S. inflation risks. The firm projects that the jewelry industry may see a "sequential recovery" in Q3 2026, advising investors to focus on targets with high direct-sales exposure and low inventory hedging ratios, while also factoring in the timing of inventory off-balance-sheet movements. Earnings improvements are expected over the next one to two quarters.
Gold Prices Likely to Oscillate Widely in H1 2026, Intensifying Inventory Write-Down Losses
In the first half of 2026, the global gold market experienced broad volatility, with international gold prices declining nearly 8% cumulatively. London spot gold surged to a record high of approximately $5,600 per ounce early in the year before rapidly retreating, recording a maximum drawdown of nearly 30% from its peak—the sharpest correction since 2013. The second quarter, typically a seasonal consumption lull, saw gold jewelry demand weaken further amid high price volatility. Meanwhile, the sharp drop in gold prices directly lowered the net realizable value of gold inventories, potentially resulting in substantial inventory write-down losses.
Market Adjusting Hawkish Stance, Gold Prices Starting to Recover
In July 2026, U.S. non-farm payrolls declined by 23,000, missing market expectations, while the core CPI year-on-year growth slowed to 2.5% with a month-on-month weakening. These factors have prompted the market to gradually revise hawkish expectations, allowing gold prices to begin their recovery. Although hawkish comments from Warsh have caused U.S. Treasury yields to rise and gold to adjust in the short term, from a medium-term perspective, the sustained strengthening of inflation expectations since January has been driven by rising oil prices, which heightens risks in the U.S. production sector—including the sustainability of CSP CapEx and defaults on small and medium-sized enterprise private debt. From this angle, gold is well-positioned to benefit from the unfolding of U.S. inflation risks.
Jewelry Industry Sales Picking Up, Watch Q3 Recovery Flexibility
As gold prices rebound, sales momentum is improving sequentially. Given that January and February are peak sales months, followed by restocking in March and April, direct-sales and franchise channels replenished inventories at relatively high gold prices. Consequently, Western Securities Co., Ltd. forecasts that the jewelry industry may achieve a "sequential recovery" in Q3 2026. Targets with high direct-sales exposure, low inventory hedging ratios, and fast-moving inventory saw more substantial inventory write-downs in Q2 and are likely to demonstrate stronger recovery flexibility in Q3.
Risk Warnings: Risks include gold price volatility, weak consumer spending, and intensified industry competition.