Core Support for Gold Prices: Western Demand Weakens, Asian Giant Underpins the Market

In recent months, international gold prices have faced overall pressure and entered a prolonged correction phase, with weak investment demand from European and U.S. markets constantly limiting the scope for price rebounds. However, gold prices have steadily held above the critical $4000 per ounce level, avoiding a significant sell-off. BMO analysis suggests that the core of this resilience is not institutional allocations from overseas, but the sustained support from Asian physical demand, centered on the Asian giant, which offsets the negative pressure from Western capital outflows and builds a solid floor for gold prices.

Key Data: Asian Giant's Gold Holdings Are Significantly Underestimated

The market has long relied on the Asian giant's official reserve data to gauge its gold allocation scale. However, BMO's latest calculations upend this traditional view, revealing that the actual holdings are substantially larger than anticipated, significantly exceeding publicly disclosed figures. The current demand volume already accounts for one-third of the total global gold demand, making it the largest primary incremental source in the global gold market. Breaking down the holdings structure, aside from the central bank's gold reserves, the remaining massive stockpile is concentrated in private jewelry consumption and physical investment bars. Currently, the Asian giant's above-ground gold holdings make up 13% of the global total, which is very close to the United States' 15% global share, with the gold reserve volumes of the two countries gradually converging.

Accumulation Strategy and Long-Term Goals

BMO points out that while the Asian giant has not publicly disclosed its ultimate target for gold accumulation, there is a strong inherent logic for expanding gold reserves, linked to the country's economic expansion and its core strategy of currency internationalization. Matching the official reserves of the U.S. is merely the minimum baseline target, which could be achieved within 2-5 years at the current pace. However, based on the global credit-building of its currency, the actual reserve target is expected to be much higher. Concurrently, the Asian giant is continuously deploying capital towards overseas assets, with a cumulative investment of approximately $18 billion, safeguarding its gold strategy. Looking at the catch-up pace: at the current rate of gold purchases, the central bank's official reserves could catch up to the U.S. in about 5 years; if total national gold holdings are considered, the timeframe for surpassing the U.S. would be significantly shortened.

Short-Term Tactics: Central Bank Uses Correction Windows to Accumulate at Lower Prices

In response to the price correction over the past few months, the Asian giant's central bank has adopted a precise tactical buying approach, seizing the opportunity to restock at lower prices. Latest data shows that the central bank increased its gold holdings by 15 tons last month, the largest monthly increase since October 2023. With cumulative additions surpassing 40 tons this year, it continues to send a firm bullish signal, providing sustained underlying support for gold prices.

Ultimate Landscape: Global Gold Pricing Power Accelerates Its Shift Eastward

Beyond reserve expansion, the Asian giant is comprehensively building a global gold pricing system. By upgrading the Hong Kong international gold hub, improving clearing and settlement infrastructure, linking with the gold exchange, and expanding liquidity in futures and over-the-counter markets, it is continuously attracting global capital to participate in its domestic gold market. BMO judges that as the Asian giant's demand volume, market liquidity, and reserve scale continue to grow, the Western-dominated gold pricing structure that has existed for centuries will be disrupted, and global gold pricing power is systematically shifting towards the Asian giant.

Summary

Overall, the core support for the current range-bound gold prices comes from the robust physical demand of the Asian giant, with weak Western investment demand being merely a short-term disturbance. The Asian giant's gold holdings and demand contribution far exceed market expectations. Driven by its currency internationalization strategy, the long-term logic for gold accumulation is solid and unassailable. The central bank's accumulation at lower prices provides continuous support for gold prices. Combined with the improvement of the domestic gold market system and the enhancement of pricing power, demand from the Asian giant is set to become the core driving force for gold price increases in the second half of the year and over the medium to long term.