A Tough June Closes a Divided First Half
Gold fell hard in June, down 11% for the month, wiping out its earlier gains and leaving the international gold price down 8% for the first half of 2026. The trigger: new Federal Reserve Chair Kevin Warsh struck a tougher tone than markets expected. That pushed up bond yields and the dollar, making gold, which pays no interest, temporarily less attractive. Investors trimmed gold ETF holdings and turned cautious in the options market.
The Big Picture
Beneath the weak headline number, the long-term story is quietly strengthening. China's central bank bought another 15 tonnes of gold in June, its largest monthly purchase since October 2023 and its 20th consecutive month of buying, the longest streak on record. Chinese investors also put meaningful money into gold funds in the first half, the second strongest start on record. The world's most strategic buyers are not selling into this dip. They are accumulating.
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Key Market Drivers
A Tougher-Sounding Fed Raised the Cost of Holding Gold: Chair Warsh's hawkish message pushed bond yields higher, which raises what investors give up by holding gold instead of interest-paying assets. Rising opportunity cost and cooling momentum drove June's decline. This is a rates story, not a gold story, and rates expectations can shift quickly.
China's Central Bank Keeps Buying Aggressively: The People's Bank of China added 15 tonnes in June, taking total gold reserves to 2,346 tonnes, now 8% of its official foreign exchange assets. It has bought gold for 20 months straight, adding 82 tonnes over that period. Central banks buy gold because it is a safe, stable asset with no credit risk, and their steady demand puts a long-term floor under the market.
Chinese Investors Stayed Committed Despite the Dip: Chinese gold funds saw record outflows in June as local investors chased a rallying stock market. Even so, first-half inflows were the second strongest on record at roughly US$5.6 billion, showing that demand for gold as protection against uncertainty remains structurally strong in the world's largest gold market.
Real Price vs. Nominal Price: Why We Stay Bullish
Gold has two prices: the nominal price quoted every day, and the real price, which strips out inflation. In recent weeks the nominal price fell sharply, but the real price corrected far less and continues to trend upward. Historically, when the real price holds firm while the nominal price dips, the nominal price tends to snap back sharply. Our forward-looking monetary indicators remain long-term bullish, and we read this divergence as a signal that a strong upward reversal is building.
Looking Ahead
Physical gold demand in China is likely to stay soft through the summer off-season, though a stabilising gold price should offer support. Investment demand will depend on the gold price trend and local equity market strength. For the fund, the picture is straightforward: the world's most strategic buyers are still accumulating, first-half investor demand was historically strong, and our model's real-price trend points to a sharp upward reversal in the nominal gold price. The fund is positioned for it.
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