Gold markets have seen crowded long positions since August 2025, with sentiment overwhelmingly bullish.
Our previous assessment of gold prices was as follows: In the short term, we were bullish, expecting a sentiment peak for gold even in the first quarter of 2026. For the medium-to-short term, we were bearish, based on the logic that a resurgence in oil prices would inevitably be followed by Federal Reserve monetary tightening, impairing gold's liquidity-driven pricing. Over the medium-to-long term, we remained bullish, citing a weakening US dollar status, with particular focus on the erosion of technological support among the dollar's three pillars. In the very long term, we maintained a bullish outlook, reasoning that as major power rivalries gradually subside, the international standing of the renminbi will rise significantly, leading to a systemic repricing of gold.
Looking back at recent gold price movements, the surge in oil prices arrived earlier due to the US-Iran conflict, rather than stemming from inherent US economic trilemmas, with prices ultimately driven back by fiscal measures. Beyond this, gold price trends have not deviated from our framework.
How should investors view gold now? Once the impact of liquidity shocks on gold prices subsides, the medium and long-term drivers for gold can reassert themselves.
**Weekly Global Asset Performance Overview:** The Shanghai Composite Index fell below the 4,000-point mark, hitting a new low for the year, while the ChiNext Index showed relative strength, even reaching a four-year high during the week. Hong Kong stocks continued to adjust, affected by expectations of Federal Reserve monetary policy tightening impacting global assets. Chinese bond market performance was mixed, with rates across maturities mainly fluctuating.
US stocks weakened further under triple pressures: a hawkish FOMC hold, a collective hawkish turn by global central banks, and escalating Iran conflict. US Treasury yields rose across the curve. Energy commodities remained supported by geopolitical risk premiums, but volatility increased significantly. Precious metals declined due to shifting interest rate expectations.
**1. Chinese Stock Markets: Volatility and Extreme Divergence This Week** *A-H Share Review:* A-shares: The Shanghai Composite fell below 4,000, a yearly low, while ChiNext was relatively strong, hitting a four-year intraday high. Most sectors declined, with only Communications and Banking posting gains. Nonferrous Metals, Steel, and Basic Chemicals led the declines. H-shares: Hong Kong stocks continued adjusting amid ongoing Middle East tensions, high international oil prices, strong risk-off sentiment, and heightened inflation concerns. By sector, Energy outperformed, benefiting from high crude prices. Nonferrous metals fell sharply amid gold's decline, while Technology was relatively weak under earnings pressure.
*Chinese Stock Market Outlook:* A-shares: Short-term risk appetite may continue cooling. Persistent geopolitical conflicts will likely suppress market sentiment. The bottoming process is not yet complete, requiring patience for a firm market bottom. Significant expansion in trading volume will be a key signal for stabilization. In a存量博弈 environment, chasing rebounds aggressively is not advisable. Focus on three themes: 1) Safe-haven and resource plays catalyzed by geopolitical conflict, such as coal and alternative energy like new energy; 2) Sectors directly benefiting from energy price increases, including oil exploration, coal chemical, and oil shipping; 3) Opportunities in A-share sectors from supply chain reshuffling triggered by higher energy prices. H-shares: With the US-Iran conflict escalating and uncertainty high, the Hong Kong market will likely remain influenced by geopolitical factors and oil price volatility in the short term. If sustained high oil prices push inflation higher, affecting the Fed's rate-cutting pace, it could negatively impact Hong Kong stocks. Defensive positioning is recommended.
**2. Chinese Bond Market: Weakness This Week** *Bond Market Review:* Performance was mixed, with rates mainly fluctuating. Early-week回调 occurred due to improving economic data and rising inflation expectations, followed by a recovery supported by equity market weakness. A slightly looser liquidity environment helped short-to-medium term bonds, while long-end and ultra-long-end bonds were weaker. The 2-year government bond yield fell 3.2 basis points to 1.31%, the 10-year yield rose 1.4 basis points to 1.84%, and the 30-year yield increased 0.85 basis points to 2.3%.
*Bond Market Outlook:* Escalating geopolitical conflict and rising inflation expectations, alongside supporting factors from equity market weakness, suggest long-end and ultra-long-end bonds may struggle to deliver strong performance recently. Approaching quarter-end, potential short-term liquidity tightness could push short-term yields higher next week.
**3. US Stocks: Hawkish FOMC Hold; S&P 500 Down 1.9% for the Week** *US Stock Review:* US markets weakened under triple pressures. As of Friday's close, the S&P 500 stood at 6,506, down about 1.9% for the week (down ~7% from January highs); the Dow Jones fell to 45,577 (~-2.1%); the Nasdaq Composite was at 21,648 (~-2.1%); the Russell 2000 dropped to 2,438 (~-1.7%), officially entering correction territory (down over 10% from recent highs). The VIX fluctuated between 22-27, closing at 26.78. The S&P 500 recorded its fourth consecutive weekly decline, the longest losing streak since 2025.
*US Stock Outlook:* US stocks currently price ongoing US-Iran conflict more optimistically than US bonds. Historically, during four major oil shocks, the median S&P decline was -12%, with a median peak-to-trough drop of -23%. The current cumulative decline is only about 7%, suggesting significant potential downside if the conflict persists. Friday's remarks from Trump about "considering scaling back military action" and Israel's pledge to avoid attacking energy facilities offer a possibility of de-escalation next week.
**4. Global Rates and FX: Central Banks Turn Hawkish; US Yields Rise Across Curve** *Weekly Global Rates/FX Review:* US Treasury yields rose significantly, driven by the hawkish FOMC hold and a collective hawkish shift by global central banks. As of Friday, 2-year, 10-year, and 30-year yields were 3.88%, 4.37%, and 4.93% respectively, up approximately 17bp, 9bp, and 3bp from the previous Friday. The 10-year yield reached its highest level since July 2025, with the 30-year approaching the 5% psychological barrier. The yield increase exhibited a "bear flattener" pattern: short-end rises (2Y +18bp) exceeded long-end gains (30Y +5bp), reflecting higher inflation expectations and fading rate cut hopes. The week's movement wasn't one-way: On Tuesday, the 10-year yield briefly fell to 4.20% on conflict de-escalation signals; subsequent hawkish FOMC and global central bank actions then pushed yields higher.
*FX Review:* The DXY displayed a "rush higher then retreat" pattern, hitting 100.5 (a six-month high) on Monday before gradually falling to 99.5 by Friday (down ~0.9% weekly). Although the dollar holds a "petrodollar" advantage in this oil shock (US is a net energy exporter), hawkish turns by other central banks on Friday boosted the euro and pound, pressuring the dollar.
*Global Rates/FX Outlook:* *US Treasuries:* Front-end rates have largely priced in hawkish scenarios, nearing the upper limit of risk scenarios, leaving limited room for further hawkish pricing. Financial conditions have tightened noticeably. Historically, the next step would be yield declines following demand contraction. However, this cycle may differ, requiring assessment of potential systemic increases in global interest rate benchmarks due to fractures in global supply chains and energy systems. *FX:* Short-term (3 months), the dollar remains strong, especially against currencies of energy-importing nations. The composition of the DXY means its movement largely depends on the euro and yen. Long-term, observing dollar strength will require watching gold and the USD/CNY exchange rate.
*Key Focus Next Week:* Substantive developments in the Iran situation post-Trump's "scale-back" comments, February PCE data, initial effects of SPR crude releases, and further signals of rate hikes from the BoE and ECB.
**5. Commodity Markets: Energy Supported by Geopolitics, Volatility Spikes** *Weekly Commodity Review:* Geopolitical risk remained the dominant factor. Energy commodities were supported by geopolitical premiums, but volatility increased significantly. Precious metals fell under pressure from shifting rate expectations and a stronger dollar. 1) Gold posted its largest weekly decline since 1983, with spot gold briefly falling to the $4,500 level. Concerns over potential prolonged closure of the Strait of Hormuz and the Fed's hawkish stance weighed on prices. 2) Crude oil experienced sharp volatility, with Brent futures briefly surpassing $112/barrel. The IEA's announcement of a record 271.7 million barrel strategic reserve release was seen as insufficient to offset supply gaps.
*Global Commodity Outlook:* *Gold:* Precious metals' safe-haven attributes are temporarily inactive; clearer signals on the interest rate path are needed. *Crude Oil:* Markets are highly sensitive; any geopolitical news could trigger sharp price reactions. *Copper:* Short-term focus is on escalating conflict and the impact of sharply deteriorating risk appetite on copper markets.
Geopolitical conflicts remain uncertain, disrupting global growth prospects and market risk appetite. The sustainability of the consumption recovery is also uncertain. While household consumption has begun recovering this year, it hasn't reached pre-pandemic normalized growth rates. Whether this improvement can continue needs close monitoring. If consumption weakens again, economic recovery momentum would significantly diminish. Uncertainty persists regarding continued improvement in the real estate sector. The current property downturn has lasted considerably long; while a brief warming trend appears, many indicators remain negative, and its sustainability requires observation. The impact of tightening monetary policy in Europe and the US may exceed expectations, dragging on global growth and asset prices. Geopolitical conflicts continue to cloud the global economic outlook and risk sentiment.