China Securities Co., Ltd. 2027 Gold Outlook: Limited Suppression from Interest Rates, Central Bank Gold Purchases Provide Support, Gold Price Center Expected to Trend Higher with Fluctuations

China Securities Co., Ltd. released a research report stating that the upside room for real interest rates is relatively limited, and central bank gold purchases provide a floor, so the gold price center is expected to trend higher with fluctuations. The current rise in real interest rates is the core factor suppressing gold prices. Looking ahead to 2027, the U.S. economy shows K-shaped divergence, the high base of oil prices will weaken energy's contribution to inflation, the market has fully priced in 2027 rate hike expectations, and combined with the hard constraint of U.S. fiscal interest payment pressure, the further upside room for real interest rates is expected to be relatively limited, and pressure on gold prices is expected to gradually ease. At the same time, global reserve diversification drives the continuation of central banks' medium- to long-term gold purchase trend, forming stable absorption during gold price corrections and continuously raising the floor for gold prices. Although this is unlikely to drive a one-way sharp rally, it will, together with easing real interest rates, support the gold price center in trending higher with fluctuations. The main views of China Securities Co., Ltd. are as follows: Market review: Gold prices under pressure, cumulative decline of about 10% After two consecutive years of gains in 2024-2025, gold prices saw their first substantive correction in 2026. Gold prices rose 27% and 63% in 2024 and 2025, respectively. In January 2026, London spot gold once surged to US$5,599/oz, then continued to fall. As of October 30, London spot gold had fallen 10.41% cumulatively in 2026, with a maximum drawdown of about 31% during the period. 1) January-February: Geopolitical safe-haven demand, rate cut expectations and central bank gold purchases resonated, pushing gold prices to new highs; subsequently, Warsh's nomination triggered hawkish expectations, profit-taking led to concentrated selling, and gold prices turned lower. 2) February-March: The U.S.-Iran conflict broke out in February, safe-haven trading heated up, and gold prices recovered. However, as oil prices surged, inflation concerns and rate hike trading heated up, and gold prices fell again. 3) April-July: The U.S.-Iran conflict eased in April, and gold prices stopped falling and rebounded. But in May, nonfarm payrolls and CPI exceeded expectations; in June, the dot plot showed 9 people supporting a rate hike, and combined with capital diversion to the AI sector, gold prices fell. In July, tech stocks corrected, the intensity of the U.S.-Iran conflict declined, inflation pressure eased, and combined with economic data missing expectations, gold prices bottomed out. 4) August-October: August economic data missed expectations, rate hike expectations cooled, and combined with the Treasury's buyback of U.S. Treasuries triggering market concerns about U.S. dollar sovereign credit, gold prices rebounded. Thereafter, as the Fed implemented one rate hike in September and oil prices remained high, gold prices weakened again. Entering October, a correction in equity markets triggered a liquidity crunch, gold was sold off, and gold prices probed the year's low. Real interest rates: The core factor suppressing gold prices, with limited upside expected in the future In 2026, central bank gold purchases weakened at the margin, and rising real interest rates became the core factor suppressing gold prices. Since 2022, global central bank gold purchases have increased significantly, once becoming the main force of marginal gold demand, with the demand share rising from 11% to 23%; central bank gold purchases to some extent offset the suppression of gold prices by rising real interest rates, and gold prices and real interest rates showed "decoupling" characteristics in 2022-2024. However, central banks also consider purchase costs, and in 2025 and 2026 gold prices traded at historical highs, leading some central banks to temporarily slow the pace of purchases. Although the long-term trend of central bank accumulation has not changed, the marginal purchasing force has weakened and is no longer able to fully offset the impact of interest rate fluctuations. Therefore, in 2026, rising real interest rates became the core force suppressing gold prices, while central bank gold purchases retreated to being the floor support for gold prices. The rise in real interest rates in 2026 mainly stemmed from four points: 1) The Fed's policy shift, switching from rate cut expectations to rate hikes, with a 25bp hike implemented in September and the dot plot revised upward simultaneously; 2) The U.S.-Iran conflict pushed up oil prices and drove inflation higher, but long-term inflation expectations did not rise significantly, so most of the rise in nominal rates translated into higher real rates; 3) AI industry capital expenditure continued to expand, pushing up the market's pricing of the neutral rate center; 4) High U.S. fiscal deficits combined with upward pressure on U.S. Treasury supply drove real term premiums higher. The further upside room for real interest rates in 2027 is expected to be relatively limited, with the core logic as follows: 1) The U.S. economy shows a K-shaped divergence pattern and lacks the fundamental basis for sustained, large-scale rate hikes; 2) High oil prices in 2026 create a high base effect, and their marginal contribution to inflation is expected to weaken in 2027, with inflation likely trending downward for the full year; 3) The market has fully priced in 2027 rate hike expectations; 4) U.S. fiscal interest payment pressure forms a hard constraint that will limit the height of real interest rate increases. The U.S. economy currently shows K-shaped divergence and does not have the basis for large-scale rate hikes. Although aggregate data such as GDP and employment continue to show better-than-expected resilience, internal structural divergence is significant: the tech sector is strong, while traditional sectors are weakening. Looking ahead to 2027, with the AI capex cycle continuing and rigid fiscal spending providing support, the economy is expected to maintain moderate growth, but high interest rates will suppress household consumption and strongly constrain financing for manufacturing and small and medium-sized enterprises, so the U.S. lacks fundamental support for large-scale rate hikes. Oil prices' pulling effect on inflation is expected to weaken in 2027, and the inflation center is expected to move lower. As of October 30, 2026, oil prices had risen to US$104/barrel. Looking ahead to 2027, Middle East geopolitical risks remain uncertain, but oil prices are already at historical highs, with limited further upside. Even if oil prices remain high and range-bound, the high base formed in 2026 will weaken the energy component's contribution to CPI year-on-year, driving nominal inflation lower. However, the oil price base in early 2026 was low, so inflation in 2027 is likely to be high in the first half and low in the second half, with the full-year center trending downward. From quantitative estimates, historical experience shows that every 10% change in oil prices corresponds to about a 0.2 percentage point change in CPI year-on-year. Assuming the CPI year-on-year center excluding energy is 2.6%, five oil price scenarios of US$70/90/110/130/180 per barrel were set for estimation. The results show that as long as oil prices do not rise substantially, inflation in 2027 will generally trend downward. Fiscal interest payment constraints will limit the upside room for real interest rates. U.S. public debt stock is high, and with real interest rates currently at high levels, federal net interest expense as a share of GDP in 2025 has exceeded defense spending, highlighting significant fiscal interest payment pressure. The scale of rolling refinancing of existing U.S. debt is large and the pace is fast, and the impact of rising rates on fiscal costs has a lagged cumulative characteristic: if real interest rates continue to rise, after existing bonds gradually mature and are replaced, the interest payment cost of the overall debt portfolio will increase, interest expense will further squeeze fiscal policy space, and fiscal sustainability constraints will strengthen accordingly, thereby constraining the height of real interest rate increases. The market has fully priced in 2027 rate hike expectations. The September 2026 FOMC dot plot shows one more hike expected in 2026, raising the policy rate to 4.00%-4.25%; members' expectations for 2027 are clearly divergent: 8 support one more hike to 4.25%-4.5%, 6 maintain rates unchanged, and 4 expect rate cuts, with the overall expectation that a rate cut cycle begins in 2028. Meanwhile, CME interest rate futures currently price a terminal rate of 4.5%-4.75%, implying two hikes in 2027, and rate hike expectations have been fully reflected in asset prices. From the trading pattern of gold prices, the stage with the greatest pressure on gold prices is the process when the market expectation shifts from rate cuts to rate hikes; once rate hike expectations are priced in advance, the actual hike often represents the realization of a negative factor, which instead supports gold prices. Fund flows: Trading funds more volatile, central bank gold purchases provide floor support Trading funds: Rotation following gold prices and rate expectations Global gold ETF flows in 2026 basically followed gold price fluctuations. In January, funds flowed in concentratedly, with Asian funds as the main buyers, corresponding to gold prices surging to the year's high; from March to June, funds flowed out repeatedly, with prominent selling pressure from North America, and the first half overall saw only a small net inflow. From July to September, funds returned on a large scale, with third-quarter inflows reaching a record high for a single quarter, and buying shifting to being led by European and American funds while Asia maintained steady inflows; in terms of regional structure, incremental funds in the first half mainly came from Asia, while Europe and the U.S. continued to see outflows; in the third quarter, Europe and the U.S. became the main buyers, while Asia maintained moderate inflows. In late October, ETFs saw net outflows again, and SPDR holdings declined somewhat, but overall holdings remained at the year's high. Gold option volatility in 2026 was generally at high levels. The full-year average implied volatility was at a historically high percentile, but the pace was clearly differentiated: two rounds of surges in the first quarter reflected gold price peak risk in advance; in the second quarter, geopolitical conflicts eased and volatility fell rapidly with risk premiums; in the third quarter, market panic clearly cooled and implied volatility remained persistently low; in October, the liquidity shock drove a rapid one-day rebound in volatility. From the perspective of COMEX non-commercial net longs, net long positions hit the year's high in January; after hawkish expectations materialized, funds concentratedly reduced positions in February; in the third quarter, positions were increased again alongside the gold price rebound, and in mid-October positions continued to be reduced. Central bank gold purchases: Expected to continue in 2027, steadily raising the gold price center Central bank gold purchases have formed a medium- to long-term trend, and demand is expected to remain high. In recent years, the U.S. dollar has been continuously over-issued, and U.S. debt as a share of GDP has continued to rise. After the Russia-Ukraine conflict in 2022, the U.S. removed Russia from the SWIFT settlement system, strengthening non-U.S. economies' demand to diversify reserve currencies and asset allocation, and further accelerating the global de-dollarization process. Gold does not rely on the credit of a single country and is a borderless store of value with "decentralized" characteristics; its value consensus has been verified over thousands of years, making it an important tool for central banks to promote reserve asset diversification and hedge geopolitical risks. From 2010-2021, global central banks' average annual net gold purchases were about 473 tonnes; from 2022-2024, average annual net purchases rose to 1,072 tonnes, exceeding 1,000 tonnes for three consecutive years; in 2025, purchases fell back to 850 tonnes, and in the first three quarters of 2026, global cumulative net gold purchases were 675 tonnes. In the first three quarters of 2026, a total of 43 countries and regions increased gold holdings, with Poland having the largest purchase volume. China's central bank has increased holdings for 23 consecutive months, accumulating 103.26 tonnes in the first three quarters, and economies such as the Czech Republic, Uzbekistan, Kazakhstan, and Jordan are also continuing to allocate. Although some central banks sold gold in 2026, most were economies facing fiscal pressure or exchange rate pressure: Russia reduced holdings due to fiscal needs to supplement military spending, Turkey conducted liquidity adjustment to stabilize its currency, and Azerbaijan's sovereign fund rebalanced assets because it reached its gold allocation cap. The reasons for the above reductions are clear and relatively predictable, and will only disturb monthly data in the short term; the overall direction of continued net central bank gold purchases has not changed. Looking ahead to 2027, the global central bank gold purchase trend is expected to continue, and their role in the market will be more as a floor support for prices rather than a driver of trend: 1) From central bank surveys: The WGC June 2026 survey shows that among 74 central banks that responded, 89% of respondents expect global central bank gold reserves to continue increasing over the next 12 months, and 45% plan to increase holdings in the coming year, both hitting new highs since the survey began in 2018. 2) From the perspective of gold as a share of foreign exchange reserves: After 2022, the "accessibility" of reserves became an independent risk for the first time. Combined with continuously rising global debt levels and deteriorating fiscal conditions in major economies, gold, as an asset hedging sovereign credit risk, has attracted attention from central banks. According to the latest World Gold Council data, gold accounts for about 26% of global central bank reserves, with emerging market countries still at a relatively low share. Against the backdrop of global foreign exchange reserve diversification, central banks are expected to continue purchasing gold. 3) By country: China: According to World Gold Council statistics, as of the end of September 2026, China National Gold Group Gold Jewellery reserves stood at 2,410 tonnes, corresponding to a market value of about US$323.5 billion (at US$4,175/oz), with gold accounting for about 8.5% of official reserves, implying total official reserves of about US$3.79 trillion. If gold prices and total official reserves remain unchanged, raising China National Gold Group Gold Jewellery's reserve share to 15% would require purchasing about another 1,800 tonnes of gold; at 150 tonnes of purchases per year, this would still require more than 10 years of continued buying. Poland: The National Bank of Poland announced on November 5, 2026 that its gold reserves had reached the strategic target of 700 tonnes, accounting for about 31% of official reserves. However, Governor Glapinski said he "sees no reason to stop buying gold" and advocated that gold reserves grow in tandem with overall reserves, marking a shift in its gold purchase logic from "completing a quantitative target" to "continuous allocation linked to total reserves." Czech Republic: It has increased gold holdings for 43 consecutive months, with current holdings of 87 tonnes and an official target of 100 tonnes by 2028. South Korea: In August 2026, the Bank of Korea announced the resumption of physical gold purchases, the first time since 2013. Although the single purchase volume was limited, its signaling significance far exceeds the quantity itself: central banks in developed economies are also raising the share of gold reserves to cope with changes in the global monetary system and geopolitical landscape. This shows that central bank gold purchases are no longer the choice of individual economies but are evolving into a cross-bloc reserve allocation trend. Central bank gold purchases play more the role of "floor pricer" rather than "trend direction pricer." Central bank gold purchases take reserve allocation as the core objective, but in practice they are not completely insensitive to price, and the buying pace still references gold price levels. Reviewing the purchase pace in each quarter of 2026, gold price correction phases often corresponded to accelerated entry of marginal buyers, and purchasing behavior showed obvious counter-price characteristics. Therefore, the boundary of the role of central bank gold purchases is clear: on the one hand, during gold price corrections, central banks are the most stable absorbing force, effectively compressing the downside space for gold prices, raising the floor, and reducing downside tail risk; on the other hand, net central bank gold purchases are a slow variable, with effects that accumulate linearly, only pushing the center of gold prices slowly higher and unlikely to drive a trend rally. U.S. dollar credit: Global de-dollarization trend continues The scale of U.S. Treasuries continues to expand, and the credit of U.S. dollar assets is under pressure. According to Congressional Budget Office (CBO) estimates, the OBBBA bill will push up U.S. fiscal deficits and debt burden, and federal debt held by the public as a share of GDP is expected to rise to 120% by 2036, intensifying sovereign credit concerns. At the same time, expanded long-term Treasury supply may push up long-end rates through supply-demand and term premiums, raising interest payment costs and further weakening the credit foundation of U.S. Treasuries and U.S. dollar assets. The global foreign exchange reserve diversification trend continues. IMF data shows that in the second quarter of 2026, the U.S. dollar's share of global foreign exchange reserves fell to 56.70%, down 0.48 percentage points from 57.18% in the first quarter, while the euro rose to 20.60%. Exchange rate fluctuations among major currencies during the quarter were roughly within 2%, so the valuation effect was limited, indicating that this was mainly active allocation rather than a valuation effect. The marginal weakening of U.S. dollar credit and intensified global financial volatility have raised private-sector gold allocation demand in emerging markets. Asset allocation behavior of the private sector in emerging markets may undergo a structural shift. After obtaining trade surpluses with Western countries, they may reduce reliance on traditional U.S. dollar assets such as U.S. Treasuries and instead increase allocation to diversified assets. Gold, as a non-sovereign, highly liquid "quasi-money" asset, has seen a significant rise in appeal. Especially under the long-term trend of tariff disputes triggering a restructuring of the financial order, increased global market volatility, and weakening U.S. government credibility, the allocation share of gold as a store of value and risk hedge is expected to continue rising. Gold equities: The trough is gradually passing, performance is promising Safety regulation disrupted 2026 output, and 2027 is expected to see output recovery. In 2026, driven by individual safety accidents, domestic mines launched industry-wide safety self-inspections, and industry safety regulation tightened. Some key mine projects suspended production for maintenance in coordination with regional special inspections on work safety, dragging down domestic gold raw material output. In the first three quarters, raw material gold output was 221 tonnes, down 18.71% year-on-year. Looking ahead to 2027, the gold sector is expected to see output recovery, with incremental growth mainly from three aspects: 1) The low base formed by safety-related production restrictions in 2026; 2) Mines suspended for rectification gradually resuming production; 3) New construction and technical transformation projects gradually coming into operation and releasing capacity. Valuation is at a relatively low level and is expected to recover. From a valuation perspective, the current valuation of the domestic gold equity sector is at a relatively low level over the past three years. After the sector valuation peaked in early 2026, it continued to be digested as gold prices corrected and safety compliance production cuts suppressed performance. As of now, the sector's PE (TTM) has fallen back to a low range since 2023. Looking ahead to 2027, with existing mines resuming production and new projects coming into operation in a concentrated manner, valuation is expected to recover. Investment evaluation and recommendations The core contradiction suppressing gold prices in 2026 came from rising real interest rates. Looking ahead to 2027, the further upside room for real interest rates is limited, and this round of rate hike expectations has already been fully priced by the market. At the same time, continued global central bank gold purchases will provide absorption during gold price corrections and build floor support, so gold prices are expected to trend higher with fluctuations in 2027. On the risk side, the U.S.-Iran geopolitical conflict pushing up oil prices and thereby disrupting inflation remains the main risk variable for 2027, but the impact of this factor on gold prices is expected to weaken at the margin. For gold equities, the industry safety overhaul in 2026 brought temporary pressure on output, and in 2027 suspended mines are expected to gradually resume production, with output expected to recover and be released. The current sector valuation has sufficient margin of safety. If the gold price center rises, the gold sector is expected to see a double boost in performance and valuation, and it is recommended to prioritize targets with strong certainty of output growth, steady cost control, and high-quality resource endowments and corporate governance. Risk warnings 1. AI bubbleization triggers concerns about global economic growth. Hundreds of billions of AI investment is regarded as key to driving economic transformation and growth. If AI fails to deliver investment returns, leading to bubbleization or even a burst, it would deal a blow to confidence in economic growth. 2. A decline in aluminum prices leads to forward commissioning falling short of expectations. Electrolytic aluminum turning to oversupply suppresses forward aluminum prices. If aluminum prices fall to RMB18,000/tonne, the investment payback period would be significantly lengthened, forward commissioning plans might be shelved, forward output would be lower than expected, and oversupply could ease or even turn into balance. 3. There is a risk of domestic supply reduction. According to National Bureau of Statistics data, domestic electrolytic aluminum output in September 2026 was 3.908 million tonnes, with annualized operating capacity of 47.45 million tonnes, exceeding the capacity ceiling, pointing to the existence of overproduction. If policy tightens and overproduction is ordered to exit, it would cause a rigid contraction in supply, and the shock would push prices higher. 4. Consumption swings significantly, causing a major deviation in supply-demand balance. AI technology is advancing rapidly. If Siasun Robot&Automation applications spread quickly in production and daily life scenarios, they will provide new demand for aluminum and may break the baseline balance. According to Gaogong Siasun Robot&Automation Research Institute (GGII) data, aluminum usage per humanoid Siasun Robot&Automation is 20-25kg. When the number of humanoid Siasun Robot&Automation exceeds 10 million units, it will drive 200,000 tonnes of aluminum demand. 5. The U.S. copper Section 232 investigation is shelved. On February 25, 2025, U.S. President Trump signed an executive order to initiate an investigation into "whether imports of copper and copper products threaten national security." On July 30, 2025, he required the U.S. Department of Commerce to submit an updated assessment before June 30, 2026 on "whether to include refined copper in the Section 232 tariff," aimed at deciding whether to impose 15% or 30% tariffs on refined copper starting January 2027 or January 2028. If the tariff takes effect or falls through, copper will no longer continue to be shipped to the U.S., causing non-U.S. regions to absorb refined copper oversupply on their own, putting pressure on copper prices. 6. Copper mine supply falls far short of expectations, driving prices to shift significantly upward. In recent years, the global copper mine production disruption rate has remained high, reflected in delayed new supply realization, accidents at operating mines, and declining ore grades. If copper mine production disruptions intensify again in 2027-2029, it will not be possible to guarantee the realization of 500,000-700,000 tonnes of new copper mine supply, and the supply shortfall will create upward momentum for prices. 7. The Middle East war continues, and high oil prices trigger global economic recession risk. If the Middle East conflict continues, crude oil prices face runaway risk. Inflation pushing up risk-free rates will intensify the contradiction between AI investment and returns, thereby weakening global economic growth and even triggering recession risk, and downstream consumption as well as copper and gold prices will be severely impacted. 8. Macro interest rate and monetary policy risk. If the Fed's policy path is significantly hawkish, rising TIPS yields will drive gold price corrections; at the same time, marginal changes in the monetary policies of the ECB and other major central banks will also disturb the global real interest rate center and bring periodic gold price volatility. 9. U.S. dollar exchange rate risk. A stronger dollar index will directly suppress dollar-denominated gold prices. Relative resilience of the U.S. economy versus overseas economies, global safe-haven funds flowing back to U.S. dollar assets, and deterioration in the fundamentals of non-U.S. economies may all drive the dollar higher and weaken gold's relative appeal. If the dollar enters a trend of sustained strengthening, the upside space for gold prices will be clearly constrained. 10. Risk of central bank gold purchases falling short of expectations. Central bank gold purchases are the core supporting variable for this long-cycle gold demand. If many central banks' foreign exchange reserve allocation strategies shift, fiscal pressure increases, or foreign exchange liquidity tightens, purchase scale declines or even periodic gold selling occurs, core demand support will weaken and the resilience of the gold price floor will be undermined. Central bank gold purchase pace has quarter-level volatility, and when its sustainability is lower than optimistic market assumptions, the market is prone to expectation-gap adjustments.