BIT Research: Gold breaks the downward trend, what does it mean that there have been 10 similar signals in history that all resulted in an increase?

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

Although the recent policy signals from Federal Reserve Chairman Waller have been more hawkish than market expectations, only 3 of the 12 voting members supported an interest rate hike at the FOMC meeting at the end of July. From now until the September meeting, there is relatively limited incremental information available for the market to assess, coupled with oil prices failing to rise above $100 per barrel, which has eased the risk of inflation driven by energy prices exceeding expectations. The market is gradually shifting towards expectations of 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 a Record in Q2, Sustained Allocation Demand Becomes Important Support

Behind this breakthrough in gold, 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 the second quarter, an increase of 62% compared to 177.9 tons in the same period last year. Even though gold prices temporarily fell about 30% from the late January peak, central banks continued to increase their holdings, contrasting sharply with the net outflows seen in 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, the largest single-quarter increase since Q4 2023, bringing the total increase in the first half of the year to 40 tons. The central banks of Uzbekistan and Kazakhstan increased their holdings by 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 also have sustainability. Central bank reserve allocations typically focus on the long term and reduce the impact on market prices by diversifying purchase timing. Therefore, the record gold purchase scale in the second quarter is more likely to correspond to allocation demand spanning multiple quarters rather than a one-time purchase. The Bank of Korea recently announced plans to purchase gold from domestic producers for the first time in 13 years to broaden purchasing channels and promote the diversification of approximately $400 billion in foreign exchange reserves.

Asian Gold Demand Remains Strong, Technical Breakthrough Releases Upside Signals

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

At the same time, several banks in China are adjusting or suspending their precious metals bidding trading services for individual customers, with some deferred contracts adopting a margin trading mechanism. As relevant channels on the banking side shrink, individual investors' gold allocations may reduce their reliance on deferred delivery and margin trading, shifting more towards physical gold, accumulated gold, and gold ETFs as allocation tools. However, this change still requires further verification from subsequent capital flow data.

The technical aspects are also releasing positive signals. Gold futures have reached new short-term highs. Looking back at the previous 10 similar situations, the median return on gold futures over the following three months reached +10%, with all 10 samples recording positive returns. The report's charts further indicate that stabilizing gold prices above $4,092 is conducive to maintaining a bullish structure, while breaking through $4,208 would mean a larger upside potential is opening up.

Overall, the current breakthrough in gold is accompanied by changes in policy expectations, central bank gold 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 the strong resilience of Asian physical and investment demand provide continuous support for gold. As gold prices break through the previous downward trend, the market's focus is gradually shifting from "can it complete the bottoming process" to "can the breakthrough 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 demand from central banks and Asian gold demand still show resilience. Historical data shows that when similar breakthroughs occur after the bottoming phase ends, the median return on gold over the following three months is about 10%, with all of the past 10 similar situations recording positive returns. Going forward, whether gold prices can maintain above $4,000 and further open up upside potential after breaking through $4,200 will become an important observation point for assessing whether this round of gold trends can be sustained.

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