Investors seeking to uncover promising thematic opportunities should consult the authoritative, professional, timely, and comprehensive research reports from top analysts. In a recent presentation titled "When Gold Surpasses $5500," Liu Gang, Chief Overseas Strategist at CICC, shared his perspectives on the dramatic surge and subsequent sharp decline in gold and other precious metals.
This timely analysis, delivered during a period of significant market volatility, has attracted considerable attention. The following is an edited transcript of his key remarks, presented from a first-person perspective for reference.
Notable Quotes: 1. Following its breakthrough above $5500, the gold price experienced a significant pullback. While this outcome may appear coincidental, the price level itself holds substantial meaning. 2. Since the 1980s, gold has never witnessed a 25% monthly gain or a single-day drop exceeding 10 percentage points; the recent market behavior is unprecedented. 3. A key driver behind gold's explosive rally is that its pricing has long transcended traditional fundamental models. Conventional frameworks, which use real interest rates as the opportunity cost of holding gold and inflation as its risk-hedging value source, cannot justify prices reaching such heights. 4. A simple indicator for a liquidity crisis is the US Dollar Index; a global liquidity crunch typically causes the dollar to strengthen sharply, which is clearly not the current situation. 5. The primary catalyst for this gold adjustment was the nomination of a new candidate for Federal Reserve Chair. Market concern stems not from the candidate's proposed policies per se, but from the potential for a shift in the Fed's policy approach. 6. Post-Bretton Woods, a global system emerged with the US dollar as the anchor, pegged to US Treasuries, forming a dollar recycling loop that allows the US to run deficits with relatively little penalty. 7. Touching $5500 signifies the first time we have reached a juncture that could challenge the dollar's dominant cycle and hegemony. This level marks either the beginning of a new era or a ceiling challenging the old order. 8. The fundamental logic behind the recent A-share market rally is simple: excess liquidity chasing recognized "scarce return assets." The specific assets deemed scarce rotate over time, creating market sector rotation.
What does the correction after gold broke above "$5500" signify? Precious metals, including gold, have experienced violent swings characterized by rapid surges and steep declines over the past week. The critical question is what macro trends and logical drivers underpin this volatility. The focus on the "$5500 per ounce" level is due to its seemingly symbolic significance. The pronounced pullback after breaching this level, while perhaps coincidental, carries important implications. This turbulence has also spread to base metals and equity markets globally, raising concerns about potential liquidity crises and cascading sell-offs, making an analysis of the underlying logic across US, A-share, and Hong Kong markets essential.
What has happened? The report's title, "When Gold Surpasses $5500 – A Watershed Between Old and New Orders?", frames the discussion. Recent market movements are partly linked to the "nomination of a new Fed Chair" and a perceived "Volcker moment for gold." This year alone, gold has set multiple records unseen in decades. The extreme volatility and exuberant sentiment are clear in hindsight, but real-time decision-making during such frenzied price action renders precise point forecasts largely ineffective.
Why did gold experience a major adjustment? Three primary reasons explain the sharp correction. First, gold's price has detached from traditional fundamental pricing models. Second, geopolitical and currency narratives, while powerful, lack clear timelines for realization. Third, the rapid ascent was fueled by speculative capital and leverage, making timing and direction difficult to pinpoint simultaneously. For instance, a late 2025 report projected a $5500 price target based on gold's total value equaling that of US Treasuries, but no one anticipated it being reached within just three months.
Not every decline leads to a liquidity crisis. Market downturns often trigger fears of liquidity risks. However, a simple gauge for a genuine global liquidity crisis is a sharply strengthening US Dollar Index, indicating a scramble for cash. Currently, this is not occurring, as interbank rates remain stable. While risks could escalate with further steep declines, a full-blown crisis is not yet evident.
Merely incorporating previously neglected logic. The main catalyst for the adjustment was the Fed Chair nomination, which impacted expectations and triggered the precious metals sell-off. However, the correction also reflects the preceding excessive gains and overheated sentiment. Compared to relatively stable US equities and bonds, the outsized reaction in gold highlights its overextended position. The nominee's views emphasize "rate cuts and balance sheet reduction," with a generally dovish tilt on inflation but a perceived hawkishness on quantitative tightening (QT). The market's worry is not QT itself, but a potential change in policy framework, affecting the typical "rate cuts lead to lower long-end yields" trade due to rising term premiums. This has provided marginal support for the dollar and tempered part of gold's long-term narrative without reversing the overall trend, essentially adding back the previously overlooked QT factor.
$5500 represents the first parity between gold and US Treasuries. The $5500 target was derived from a simple calculation equating the total estimated value of all above-ground gold with the roughly $38-39 trillion US Treasury market, approximately 120% of US GDP. This parity signifies that gold, for the first time since the 1980s, represents a credit system capable of rivaling US Treasuries on a scale basis. Reaching this level challenges the post-Bretton Woods dollar hegemony, where US debt replaced gold's discipline. At this scale, gold offers an alternative "credit backing" for entities concerned about the weaponization of reserve assets or dollar system safety, explaining initiatives like "gold-backed tokenization." Thus, $5500 is both a potential starting point for a new order and a ceiling provoking resistance from the old order.
Gold pricing has decoupled from "traditional models." Future upside for gold depends on what proportion of reserve assets it could potentially "replace." This is difficult to model as we are in uncharted territory. Common explanations for the rally include: a weakened correlation with the US dollar; the failure of real interest rate/inflation models; geopolitical risks originating from the US itself, which weakens the dollar's safe-haven appeal; and fund flows from various investors. Underlying this decoupling is a "partial substitution" of dollar credit driven by distrust in the US.
Global attitudes toward gold and the dollar show a "binary split." The global stance is starkly divided: one cohort is buying gold and selling Treasuries, while another continues buying Treasuries, with holdings at record highs. This dichotomy exists because within the dollar system, Treasuries' vast size and network benefits are compelling, whereas others prioritize diversification due to safety concerns. Even after events like the April 2025 "reciprocal tariffs," European capital largely flowed back into Treasuries. De-dollarization remains fragmented, but even a small reallocation from the massive Treasury market can significantly boost gold prices. Regional data shows clear divergence in buying motives between Asia and the West.
Replacement is not an overnight process. Realistically, the US dollar is unlikely to be fully replaced soon. Key reasons include: its dominant share in sovereign reserves; its entrenched role in trade and payment systems due to convenience and network effects; and the support of US military and technological power. The existing order will actively defend its position, as historical actions like the Plaza Accord demonstrate. The current level is likely to see increased contention and volatility.
Historical precedents are difficult to replicate. Only two historical instances saw gold's value rival Treasuries: 1974 and 1979-80. Prices peaked 8 and 7 months later, respectively, but with vastly different magnitudes (9% vs. nearly 250%). The key lesson is not a fixed timeframe, but that the US acted to support the dollar system and suppress gold. Both past episodes were linked to oil crises and inflation, ultimately "solved" by Paul Volcker's drastic interest rate hikes, which restored confidence in US debt at the cost of recession. Replicating such a painful "Volcker-like" policy today seems politically challenging.
The US policy "impossible triangle." The US faces a trilemma, struggling to simultaneously achieve low inflation, low interest rates, and dollar hegemony, likely having to choose only two. Volcker sacrificed low rates to curb inflation. Today, political constraints make severe recession or ultra-high rates unacceptable. Current policies appear to test a third path, like using tariffs, but navigating these trade-offs is exceedingly difficult. An ideal scenario, aligning with the nominee's views, would involve AI-driven productivity gains taming inflation, allowing rate cuts without losing control, coupled with fiscal discipline to restore confidence. Recent gold volatility reflects a market "dress rehearsal" for a "Volcker moment," though achieving this path requires numerous conditions aligning.
It is premature to declare gold's trend reversed. Is $5500 gold a ceiling or a new beginning? Conclusively ending the bullish trend would likely require the US to make a hard choice within the "impossible triangle," incurring significant cost. Until such a decisive shift is evident, the trend cannot be declared reversed. Potential reversal factors include: a major US policy shift restoring Treasury credibility; stabilizing the binary split in reserve allocations post-elections; the emergence of a strong growth driver like AI reducing gold's relative appeal; or administrative controls on gold. Predicting the ultimate upside is challenging; historical precedents show vastly different outcomes. What is certain is increased volatility as the challenge to dollar credit reaches this critical level, prompting resistance from the established order. For retail investors, this underscores the value of dollar-cost averaging amidst long-term trends and short-term volatility.
The core logic for 2026 asset allocation. Does recent volatility disrupt the macro logic for US, A-share, and Hong Kong markets? Current performances suggest not. The guiding framework remains "following the direction of credit expansion." For the US, the base case involves continued tech trends coupled with fiscal and monetary support, differing from 2025's tech-only leadership. This explains the recent outperformance of cyclical and small-cap stocks. An overlooked factor is the US housing market's recovery, sensitive to interest rate moves. Recent changes seem more about adding "control" rather than "reversing" the existing logic; rate cuts are still expected, though their transmission may be dampened by QT concerns.
Excess liquidity chasing "scarce return assets." In Chinese markets, the underlying driver remains excess liquidity pursuing recognized scarce assets. However, the specific assets deemed scarce rotate, leading to cycles of consensus, crowding, exhaustion, and rotation. This dynamic explains valuation dispersions across sectors. From 2024 (credit contraction favoring dividends) to 2025 (credit repair favoring structural trends like AI), 2026 presents a mix: structural trends persist but slow, while traditional demand weakens, creating rotation opportunities. The key to allocation is identifying paths toward credit expansion, primarily driven by policy, rather than simply switching into low valuations. Within this framework, index targets are largely maintained. A-shares might hold a slight liquidity advantage over H-shares broadly, but the optimal strategy is "structure first, market second"—identifying sectors representing credit expansion before deciding on A/H allocation. Sector selection focuses on areas with credit expansion potential: AI/tech chains (certainty in infrastructure, long-term potential in platforms); cyclicals (supported by tech demand, potential US fiscal spending); dividends (for stability, though with reduced outperformance); and consumption (stock-picking driven, focusing on strong franchises and supply-cleared segments).