- In the first quarter of this year, the State Oil Fund of Azerbaijan (SOFAZ) systematically reduced its gold reserves by 22.1 tons, involving around 3 billion USD, bringing its gold holdings down from 38.2% at the end of 2025 to 35.6%. During the same period, sovereign buyers such as the Central Bank of Turkey (CBRT) and the Central Bank of Russia (CBR) also reduced their holdings significantly.
- The spot gold price has retreated over 10% since its peak in January this year, with a six-week consecutive adjustment of nearly 8%. Amid the recent rise in geopolitical uncertainties, traditional safe-haven assets have experienced a shift in pricing logic, failing to deliver a risk premium.
- There is a significant divergence in the expectations of sellers, with Morgan Stanley (MS:US) lowering its gold price forecast for the second half of this year from 5700 USD to 5200 USD, while Wells Fargo (WFC:US) maintains a long-term target price of 8000 USD based on fiat currency depreciation logic. The market has entered a period of bull-bear struggle.
Sovereign Fund Allocation Center and Supply Disturbances
Over the past decade, sovereign wealth funds and central banks have formed the core patient capital supporting the gold demand system. However, the recent reduction by the State Oil Fund of Azerbaijan, their first since systematically increasing holdings in 2012, has disrupted the market's expectation of unilateral sovereign buying. Although this sale includes technical adjustments due to reaching a 35% allocation ceiling, concurrent actions by the Central Bank of Turkey to sell nearly 120 tons within two weeks, the Central Bank of Russia's sale of 21.8 tons in the first quarter, and plans by the National Bank of Poland to sell for raising approximately 13 billion USD for defense have created a significant overlap on the timeline. The simultaneous shift by multiple large and medium-sized holding institutions has effectively reinforced passive supply in the spot market in the short term, exerting direct pressure on gold price valuations.
Real Interest Rate Suppression and Safe-Haven Function Dulling
In the traditional financial analysis framework, escalating geopolitical conflicts and energy supply chain disruptions typically trigger a safe-haven flow of funds. However, this spring, gold's contrary retreat suggests that changes in the macro interest rate environment temporarily outweigh pure safe-haven sentiment. Gold is essentially a zero-yield asset hedging against real interest rates, with its pricing anchored to the relative opportunity cost of holding the asset. Given that recent U.S. inflation data continues to show unexpected resilience, market pricing for a decline in benchmark rates is consistently postponed. The combination of high nominal interest rates and sticky inflation expectations has collectively pushed up real interest rates, weakening the appeal of holding a non-yielding asset, thereby preventing gold from performing its typical asset shelter function amidst spreading conflict.
Institutional Pricing Model Bull-Bear Battle
Currently, the perception of global financial institutions regarding gold pricing models is fracturing, diverging from previous unilateral consensus. Representing a cautious view, Morgan Stanley argues that the current price correction is not due to short-term liquidity disruptions but is an inevitable result of decreased long-term allocation funds combined with a high interest rate environment, therefore lowering their target price for the second half of the year. Conversely, long-term bullish institutions, including Wells Fargo, focus on the global sovereign debt expansion cycle. If high debt leverage and large fiscal deficits continue to erode the fiat currency credit system, gold's intrinsic value as a non-credit currency may be reassessed. Executives from Bridgewater Associates and Lianhua Asset Management also point out that in the process of central banks diversifying foreign exchange reserves, gold's strategic position as a risk-free asset remains solid. Should the global monetary system accelerate its restructuring, the underlying valuation support for gold may re-emerge.
