Gold is breaking out of the downward trend and consolidation range formed since late January 2026. With gold prices remaining above $4,000 and further breaking above $4,200, it may have completed its bottoming process. Meanwhile, expectations for Federal Reserve policy, global central bank purchases of gold, and changes in Asian gold demand are also beginning to provide more fundamental support for this breakout.

Although the recent policy signals from Federal Reserve Chair Waller have been more hawkish than the market expected, only 3 of the 12 voting members supported a rate hike at the FOMC meeting in late July. The incremental information available for market judgment from now until the September meeting is relatively limited, and combined with oil prices failing to reach $100 per barrel, the risk of inflation driven higher by energy prices has somewhat eased, leading the market to gradually shift its expectation towards maintaining interest rates in September rather than raising them. This change is favorable for interest rate-sensitive assets like gold.

Central Bank Gold Purchases Set Record in Q2, Sustained Allocation Demand Becomes Important Support

Behind this gold breakout, a more noteworthy change comes from global central banks. In the second quarter of 2026, global central banks net purchased 288.9 tons of gold, the highest level on record for a second quarter, up 62% from 177.9 tons in the same period last year. Even though gold prices briefly fell about 30% from the late January high, various central banks continued to increase their holdings, which stands in stark contrast to net outflows from gold ETFs during the same period.

Among them, the National Bank of Poland became the largest buyer in the second quarter with 51 tons, while the People's Bank of China increased its holdings by 33 tons, marking the largest quarterly increase since the fourth quarter of 2023, bringing the total increase for the first half of the year to 40 tons. The central banks of Uzbekistan and Kazakhstan added 16 tons and 15 tons respectively, indicating that this round of gold purchases is not driven by a single central bank, but rather by multiple central banks simultaneously expanding their gold allocations.

This trend may have sustainability. Central bank reserve allocations usually focus on the long term and minimize market price impact through staggered purchases, thus the record gold purchase scale in the second quarter is more likely to correspond to allocation demand spread across multiple quarters rather than a one-time purchase. The Bank of Korea recently announced its plan to purchase gold from domestic producers for the first time in 13 years to broaden its purchasing channels and promote the diversification of approximately $400 billion in foreign exchange reserves.

Asian Gold Demand Remains Strong, Technical Breakthrough Releases Upward Signal

In addition to central bank demand, Asia is playing a larger role in forming gold prices. In the second quarter of 2026, China and India remained the two largest markets for gold jewelry consumption globally, with a combined demand of 125 tons, accounting for about 45% of global gold jewelry demand; investment demand for gold bars and coins from the two countries combined accounted for about 51% globally, with mainland China exceeding 107 tons and India around 50 tons. In the first half of the year, demand for gold bars and coins in mainland China reached 314 tons, the strongest performance for the first half on record.

Meanwhile, several banks in China are adjusting or suspending their bidding trading services for precious metals directed at individual clients, with some deferred contracts adopting a margin trading mechanism. As relevant channels from banks shrink, personal investors may reduce their dependence on deferred delivery and margin trading for gold allocations, and turn more towards physical gold, accumulated gold, and gold ETFs as allocation tools; however, this change still requires further validation from subsequent fund flow data.

The technical indicators are also releasing positive signals. Gold futures have reached a new short-term high. Looking back at the last 10 similar situations, the median return for gold futures over the following three months reached +10%, with all 10 samples recording positive returns. The report charts further indicate that stabilizing above $4,092 is beneficial for maintaining a bullish structure, while breaking above $4,208 suggests that larger upward space is opening up.

Overall, the current breakout in gold is accompanied by various changes in policy expectations, central bank purchases, and Asian demand. The market is partially unwinding the hawkish expectations factored in after the previous FOMC meeting, while the record gold purchases by global central banks and maintaining strong resilience in Asian physical and investment demand are also providing continuous demand support for gold. As gold prices break above the previous downward trend, the market focus is gradually shifting from "whether it can complete the bottoming process" to "whether the breakout can be sustained."

If inflation does not rise further, the threshold for a Federal Reserve rate hike in September remains high; meanwhile, the long-term allocation demands from central banks and Asian gold demand remain resilient. Historical data shows that when a similar breakout occurs after the end of a bottoming phase, the median return for gold over the subsequent three months is about 10%, with all 10 past cases recording positive returns. Going forward, whether gold prices can maintain above $4,000 and further open up upward space after breaking above $4,200 will become an important observation point to judge whether this round of gold trend can continue.

The above views are partially based on BIT on Target, Contact usto obtain the complete report of BIT on Target.

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