Guosheng Securities released a research report stating that since the escalation of the Middle East geopolitical crisis in February, the market has already priced in "inflation" risks quite fully, but has not yet priced in the risks of "stagnation." Many investors, seeing the significant drop in gold prices following the conflict, interpret this as a sign of the bull market's end. However, the firm believes this pullback is merely a pause within the ongoing bull market. Since the onset of the US-Israel-Iran conflict, gold has experienced a maximum drawdown of 24%. The firm argues that while market pricing for "inflation" is substantial, the risk of "stagnation" remains unpriced.

At the conflict's outset, a sharp rise in oil prices led the market to trade on inflation-driven monetary tightening risks. A strengthening US dollar index subsequently pressured gold prices, leading to significant outflows from North American gold ETFs in March. However, as the conflict persists and oil prices climb further, the market is expected to gradually begin pricing in the risks of stagflation or recession. A weakening US dollar index and US stock market would likely pave the way for gold prices to strengthen once again.

Guosheng Securities' key viewpoints are as follows:

The petrodollar system faces a fundamental challenge from this geopolitical conflict, and the US dollar's depreciation trend appears difficult to reverse. Oil is the lifeblood of the modern economy, and its pricing and settlement in US dollars have cemented the dollar's dominant position in global trade. Currently, approximately 80% of global oil transactions are still priced in US dollars, a practice rooted more in convention than legal requirement, supported by the security relationship between Gulf states and the US. In the conflict, now lasting over a month, US defense systems have failed to protect its Gulf allies from attacks, jeopardizing the steady supply of oil through the Strait of Hormuz at reasonable prices. Consequently, the credibility of US security guarantees has been undermined. Major oil producers like Saudi Arabia, Iraq, Kuwait, and the UAE currently maintain relatively low proportions of gold reserves. Data from seven countries with disclosed figures shows total gold holdings of 1,002 tonnes, accounting for only 2.7% of global central bank gold reserves. Their combined purchases from 2022 to 2024 amounted to 92 tonnes, representing just 2.9% of central bank gold demand during that period, indicating significant potential for future increases.

This bull market is unique due to synchronized buying from both central banks and ETFs, suggesting substantial upside potential for gold. Unlike the major gold bull markets of the 1970s and 2000s, when central banks were net sellers and demand came primarily from institutional and individual investors, the current price surge is driven by a "resonance between central bank and private sector demand." This indicates that this super-cycle cannot be directly compared to previous ones.

Is there still room for increased allocations by central banks and ETFs? From both a narrative and allocation perspective, the answer is affirmative.

For central banks: Against the backdrop of the US twin deficits (trade and fiscal), a weakening US dollar seems inevitable, and the unsustainable cycle resembling a Ponzi scheme for US Treasuries is difficult to maintain. As the antithesis to the dollar, gold will continue to be favored. In recent years, the primary buyers of US debt have been domestic entities (including institutions), while the proportion held by foreign investors has continuously declined, particularly with non-OECD countries showing significantly slowed appetite for increases since 2019. According to the World Gold Council, the proportion of gold reserves to total reserves for high-income, upper-middle-income, and lower-middle-income countries is 32%, 11%, and 22% respectively, indicating substantial room for growth, especially in emerging markets. Although gold's share in central bank reserves is projected to surpass that of US Treasuries for the first time in 2025, this level is roughly comparable to that of the 1990s and remains well below historical peaks, suggesting further potential for increase. If the credit of the US dollar and US Treasuries were to fundamentally fail or be severely impaired, no single alternative asset currently exists to take its place, as no other country can simultaneously provide such a massive trade deficit (currency output) and a deep, liquid bond market (the Triffin dilemma). In this context, physical assets, particularly gold, continue to play an irreplaceable role.

For ETFs: Given the fragile underlying US economy and fiscal interest payment pressures, monetary easing remains the broader direction. Furthermore, concerns regarding the Federal Reserve's independence have not been fully factored in by the market. The interest rate framework favored by European and American capital also suggests significant potential for increased allocations to gold ETFs. According to the World Gold Council, as of the end of 2025, global gold ETF assets accounted for 2.8% of total ETF assets, still below the peaks seen in the 2011 (9.1%) and 2020 (3.6%) cycles. In the US, gold ETF assets represented 2.1% of total ETF assets, also below the levels of the 2011 (8.1%) and 2020 (2.7%) cycles.

Risk warnings include uncertainty in the geopolitical situation, potential calculation errors, data lag, and the possibility that historical precedents may not apply.