Société Générale: Multiple forces drive gold prices to new highs, Chinese demand may provide support for spot gold for several years

According to the Zhitong Finance APP, the Cross-Asset Research Department of Société Générale has released a research report titled "Commodity Compass Analysis," focusing on the rise in gold prices. The report points out that gold has recently broken out of its previous trading range, and this upward movement in gold prices is not driven by a single factor, but rather the result of multiple forces resonating, including the Federal Reserve's monetary policy easing, continued gold purchases by global central banks, and resilient positions from the investment side. Notably, the long-term demand for gold from China is particularly worthy of attention, as its reserve structure optimization plan may provide support for gold prices for several years.

I. Three Core Drivers of Rising Gold Prices

1. Federal Reserve Rate Cuts Open Up Liquidity Easing Space

The Société Générale report cites the Federal Reserve's rate cut decision last week as a "key catalyst" for the breakthrough in gold prices. With the implementation of loose monetary policy, the global market liquidity environment has further eased, significantly alleviating the interest rate pressure that previously suppressed gold prices, thereby driving funds towards safe-haven assets like gold and directly aiding gold prices in breaking through long-term resistance levels.

2. Global Central Banks' Gold Purchases Return to Normal, Supporting Market Sentiment

After a seasonal lull in gold purchases by the UK, global central bank demand for gold has rebounded to 63 tons, matching the average monthly gold purchases since 2022, reinforcing the market's bullish expectations for gold. From a regional perspective, the UK, as an important gold trading hub, has seen its total gold exports return to normal levels, with the scale of gold flowing to China being particularly notable.

3. Resilient Investment Positions, ETFs and Hedge Funds Acting in Concert

Hedge Fund Positions Remain Steady: Data from the U.S. Commodity Futures Trading Commission (CFTC) shows that despite the nominal value of hedge fund long positions in gold rising to $73 billion (a record high, up $10 billion from the same period last year), the number of long positions (106 contracts) is roughly equal to the number of short positions (21 contracts), indicating that while bullish sentiment is strong, there is no excessive speculation, and the position structure is relatively healthy.

ETF Holdings Increase Against the Trend: Even as the economic policy uncertainty index has fallen from its peak of 650 points in March 2025 to the current 274 points (significantly reducing uncertainty), gold ETF holdings have still cumulatively increased by 204 tons; in just the past four weeks, against a backdrop of a 192-point drop in the uncertainty index, ETF holdings have added 52 tons, highlighting that the investment side's demand for gold allocation possesses resilience that is "not driven by short-term safe-haven needs."

II. Long-term Support from China: Reserve Optimization and Gold Purchase Potential

1. Current Status of China's Gold Reserves: Low Proportion, Significant Room for Improvement

The Société Générale report cites data from the State Administration of Foreign Exchange (SAFE) and International Financial Statistics (IFS), indicating that as of July 2025, China's total foreign exchange reserves amount to $3.5 trillion, while its gold holdings stand at 2,300.4 tons, accounting for only 8.6% of foreign exchange reserves at current gold prices, ranking eighth in the world for official gold reserves. Compared to the global average of 21.7% for central bank gold reserves as a proportion of foreign exchange reserves, there is significant room for optimizing China's reserve structure—if the goal is to raise the gold reserve proportion to 20%, based on current gold prices, gold holdings would need to increase to 5,337 tons, adding approximately 3,036 tons to the existing reserves 2. China's Gold Purchasing Rhythm: Gradual Long-term Approach, Market Impact is Controllable

From the historical gold purchasing rhythm, during the period from July 2022 to July 2025, the People's Bank of China has an average monthly gold purchase volume of 33 tons in the months with recorded purchases (according to HMRC estimated data). If this pace is maintained, it will take nearly 8 years to fill the gold purchase gap of 3,036 tons. The report believes that this "gradual gold purchasing" model is reasonable: on one hand, the gold market size is relatively limited, and large-scale concentrated purchases may trigger severe price fluctuations; on the other hand, even though high gold prices may lead to adjustments in short-term purchasing rhythm (such as buying on dips), China's strategic need to optimize foreign exchange reserve structure and hedge geopolitical risks will not disappear, and the long-term gold purchasing trend is clear.

3. Global Impact: China's Gold Purchases as a "Stabilizer" for Gold Prices

The Societe Generale report emphasizes that since the net inflow of gold by global central banks turned positive in 2022, the average monthly gold inflow for all central banks has been 38 tons, while China's monthly gold purchase scale of 33 tons is close to this global average, making it an important part of the global central bank gold purchasing camp. Even though it will take nearly 8 years to achieve the reserve target, China's continuous gold purchasing behavior will still provide "long-term support" for gold prices, especially in the context of ongoing global geopolitical uncertainties and the loose monetary policies of major economies, this supporting role will be more significant