CITIC SEC has released a research report stating that gold prices have experienced significant volatility recently. From a fundamental perspective, the firm attributes this to shifting market concerns regarding the Federal Reserve's independence and evolving expectations surrounding the Iran situation, which initially drove gold prices sharply higher before leading to substantial fluctuations and a decline. Speculative capital in the market has also amplified these trend changes. Looking at the short-term market outlook, CITIC SEC believes the market may have overestimated the hawkish stance of the new Federal Reserve Chair, Kevin Warsh. However, uncertainty surrounding the Iran situation remains high, and volatility in the gold market may only subside once the situation becomes clearer. For the full year of 2026, CITIC SEC maintains an optimistic outlook on the prices of both precious and base metals. The firm's main views are as follows:
Since January 2026, gold prices have shown considerable volatility, driven primarily by two fundamental factors: Federal Reserve independence and the Iran situation. London spot gold concluded 2025 around $4,300 per ounce, having already experienced a significant upward trend throughout that year. In January 2026, gold prices continued to accelerate, with London spot gold nearing a peak of approximately $5,600 per ounce. However, after reaching a high on January 29th, gold prices began a phase of substantial fluctuation and decline. Other precious metals also commenced a downward trend.
This pattern of a sharp rise followed by a decline is attributed to two fundamental drivers: changes in market concern about Federal Reserve independence and developments in the Iran situation. According to reports from media outlets including Cailian Press, the Trump administration initiated a judicial investigation into Fed Chair Jerome Powell in January 2026. Powell directly linked this investigation to political pressure from the Trump administration on the Fed, heightening market worries about the central bank's independence. These concerns diminished significantly following Trump's nomination of Kevin Warsh as the next Fed Chair.
Separately, geopolitical tensions surrounding Iran escalated in January 2026. Reports from media such as Guancha.cn indicated a significant buildup of US military forces near Iran. However, by the end of January, news emerged that Iran and the US had begun negotiations. From a capital flow perspective, increased participation from speculative funds drove an amplification of price volatility. According to World Gold Council statistics, during the week in late January 2026 when gold prices peaked and began to fall, global gold ETF inflows rose to elevated levels, with the Asia-Pacific region accounting for the largest share of these inflows. This type of activity often represents the final wave of capital entering a gold bull market. Furthermore, gold price volatility gradually increased during the January rally. The substantial price gains in January were fueled by an influx of short-term speculative capital, but this concentrated positioning also created a fragile market structure. Consequently, when the fundamental bullish drivers weakened, prices for gold and some other assets experienced significant volatile declines.
Regarding the outlook for Federal Reserve policy, the market's expectations for Kevin Warsh may be overly pessimistic. The newly nominated Fed Chair's past support for the Fed's balance sheet reduction (quantitative tightening) alleviated market fears about Fed independence but raised concerns about overly aggressive quantitative monetary tightening. However, CITIC SEC believes the current state of US fiscal debt and budget conditions does not support Warsh implementing such quantitative tightening policies. Furthermore, Warsh's support for interest rate cuts could still materialize in 2026. The market may be overly pessimistic in its outlook for Fed policy.
On the geopolitical front, market volatility may ease once clarity emerges regarding the Iran situation. According to reports from Huanqiu.com, the US and Iran have recently begun to advance negotiations, leading to some cooling of market expectations concerning the Iran situation. However, the firm assesses that negotiations will be challenging. A review of the history of Iran-US talks shows little consensus on core issues. Additionally, the Trump administration may require a limited external conflict to stabilize support from its voter base and financial backers. Moreover, the significant US military buildup near Iran already appears to be in a state of high readiness. CITIC SEC believes that once the uncertainty over whether conflict with Iran will occur is resolved, the high volatility in the gold market could subside.
The firm maintains a positive outlook for gold prices throughout 2026, though it advises monitoring recent disruptions in trade relations. So far in 2026, the Trump administration's domestic and foreign policies have repeatedly exceeded market expectations. Driven by the midterm elections, policy and geopolitical uncertainty stemming from the Trump administration is likely to remain elevated. The firm maintains that an optimistic outlook for the gold market is still justified. The performance of other precious metals should also be positively influenced. However, subsequent actions by the Trump administration regarding trade policy warrant close attention. According to reports from CCTV News, the Chinese and US heads of state held a phone call on February 4, 2026. Furthermore, following the call, Trump stated, as reported by Shangyou News, that he would visit China in April 2026. CITIC SEC believes that if this visit occurs, it could lead to positive developments in Sino-US trade relations, which might exert short-term downward pressure on gold prices. However, as the market has already priced in significant expectations for improved Sino-US trade relations, this does not alter the firm's optimistic full-year outlook for gold.
Beyond gold and precious metals, CITIC SEC also anticipates a promising bull market for other base metals in 2026. As the bull market in gold continues, optimistic sentiment from the precious metals sector could spill over into base metals, helping to extend the rally in the non-ferrous metals sector. If leading indicators for infrastructure and manufacturing in both China and the US show improvement during 2026, the market performance of base metals could be even stronger.
Risk factors include geopolitical risks, global central bank gold purchases falling short of expectations, the Federal Reserve's monetary easing being less than anticipated, the US fiscal deficit being smaller than expected, and US economic growth exceeding forecasted ranges.