China Merchants Securities stated that gold has entered a favorable period for strategic allocation. Regarding the direction of Federal Reserve monetary policy, former President Trump suggested that "the future Fed chair might work from the White House." The institution anticipates that subsequent monetary policy statements from Waller may prove more dovish than market expectations, which would simultaneously weaken hawkish Fed expectations while increasing the risk of the U.S. entering a stagflation cycle. Following the March FOMC meeting, international gold prices experienced a correction, making current overweight positions in gold appear to have a high margin of safety. Key perspectives from China Merchants Securities are outlined below:

During the initial phase of energy shocks, gold prices faced temporary pressure. Historical analysis of gold price performance after energy shocks shows that rapid surges in crude oil and other energy prices typically first elevate expectations for tighter Federal Reserve monetary policy. Consequently, gold prices may not immediately benefit and could instead face periodic pressure. In late February 2026, the United States and Israel launched airstrikes against Iran. Since the Iran incident, WTI crude oil prices surged from $67.02 per barrel on February 27 to $96.57 per barrel by April 10, representing a 44.09% increase. Meanwhile, COMEX gold prices declined from $5,278.3 per ounce to $4,746.9 per ounce during the same period, a drop of 10.07%.

When energy prices undergo a substantive upward shift in their trading range, gold prices tend to demonstrate strength. As markets gradually accept the reality of a systematic rise in energy price levels and begin pricing in persistent inflation, weakening currency credibility, and stagflation risks, gold's inflation-hedging and safe-haven characteristics regain dominance. Typically, this leads to a transition from price suppression to sustained strength.

Examining historical performances of domestic and international gold stocks relative to broader market indices during stagflation cycles reveals that gold equities generally achieve excess returns during periods of trending gold price appreciation. During the first oil crisis (1973-1975) and the second oil crisis (1978-1980), gold prices surged by 173.1% and 167.8% respectively. Newmont's stock recorded a 27.34% decline and a 61.18% increase during these respective periods, while the S&P 500 index fell 29.4% and rose 12.24%. In both instances, gold stocks outperformed the broader market.

During what the institution defines as "stagflation-like" cycles—specifically August 2007 to June 2008 and January 2022 to January 2023—the domestic precious metals index generated returns of 4.37% and 22.28% respectively, demonstrating clear outperformance versus the broader market. Notably, during the 1990-1991 energy shock, while gold was still in its prolonged downtrend from 1980 to 2001, the precious metals stock index failed to deliver excess returns compared to the market.

With ongoing tensions surrounding Iran and rising risks of the U.S. economy entering a stagflation cycle, energy prices continue to climb due to supply disruption concerns. This dynamic is expected to further entrench U.S. inflation persistence, while simultaneously weakening household purchasing power and corporate profitability. Against this backdrop, Federal Reserve monetary policy remains constrained. As of February 2026, the U.S. Treasury's cumulative interest expense reached $425 billion, with an average interest payment rate of 3.32%. Should the Fed maintain high interest rates or implement further hikes to combat inflation, U.S. fiscal deficit pressures would intensify due to increased interest payments. Additionally, with midterm elections approaching, U.S. equity markets have shown weakness amid geopolitical tensions, creating potential motivation for political pressure on the new Fed chair to consider rate cuts.

Risk factors include unexpectedly hawkish Federal Reserve monetary policy, sharper-than-expected declines in energy prices, and overseas liquidity risks.