(Yicai) July 1 -- London spot gold ended the last trading day of the first half of the year almost 30 percent below its record high of USD5,598 per ounce reached at the start of the year. Market analysts remain divided over the precious metal’s prospects with some expecting prices to trade within a broad range in the second half, while others anticipate a modest rebound.

Yesterday’s session closed down 1.8 percent at USD4,016.97 per ounce and prices even briefly dipped below USD3,950 per ounce at one point for the first time since early November 2025.

From a capital flows perspective, the latest correction in gold prices has been marked by a clear divergence in investor positioning.

On the one hand, short-term investors have been reducing their exposure. Physically backed gold exchange-traded funds worldwide recorded net outflows of about USD2 billion in May, according to the World Gold Council. Total gold ETF assets under management slumped 2 percent from the month before to USD604 billion, while total gold holdings dipped 0.4 percent to 4,121 tons.

On the other hand, structural demand, and particularly purchases by central banks, continues to provide underlying support. The World Gold Council’s latest survey found that 45 percent of the 74 central banks polled plan to raise their gold reserves over the next 12 months, the highest proportion since the survey began. Meanwhile, 89 percent of reserve managers expect global central bank gold holdings to continue to rise over the coming year.

The recent drop below the USD4,000-per-ounce threshold was the result of a combination of several negative factors, including changes in the petrodollar narrative, a reversal in US Federal Reserve interest rate expectations, continued outflows from gold ETFs and the weakening of the precious metal’s traditional safe-haven appeal, said Wang Weimang, investment manager at the asset management division of Zhonghui Futures. These developments indicate that the market’s underlying trading dynamics have undergone a structural shift.

Looking ahead, China International Capital Corp. believes that the bull market in gold is far from over. As geopolitical tensions and inflationary pressures gradually ease in the second half, further Fed interest rate hikes appear unlikely, the Beijing-based financial services firm said in a research report. Instead, the timing and pace of future rate cuts may exceed market expectations, improving dollar liquidity and providing renewed support for assets such as gold and equities.

However, major financial institutions remain divided over gold’s prospects. Goldman Sachs, JPMorgan Chase, Citigroup and Morgan Stanley have all lowered their average gold price forecasts for this year.

Other institutions though remain bullish on gold. In its third-quarter commodities outlook report, the Bank of Montreal lowered its forecast for the average gold price in the second half by 5 percent to USD4,625 per ounce, but maintained its expectation that gold will exceed USD5,000 per ounce in the first quarter of 2027.

Recent communications from the Fed triggered significant position adjustments across the market, the lender said. While gold prices may remain under pressure in the near term, the metal is likely to continue benefiting from the global de-dollarization trend. As macroeconomic uncertainty stabilizes, the precious metals sector may regain momentum.

Looking ahead to the third quarter, investors should continue monitoring US economic data and the Fed’s policy path, said Wang Xiang, a portfolio manager at Bosera Funds. Market expectations for further meaningful rate hikes this year appear overly pessimistic. Liquidity indicators have yet to signal significant stress, suggesting that there is still room for a medium-term rebound in gold prices. Overall, international gold prices are likely to continue to fluctuate widely in the second half, he added.

Editor: Kim Taylor