CITIC Securities: Gold Sector Poised to Reach New Highs

Past Middle East conflicts have shown that the medium-term trend of gold prices still depends on the US dollar’s credit and liquidity factors. Looking ahead to this round of conflict, the continuation of loose liquidity and weakening US dollar credit are expected to further drive up gold prices. Historically, valuation or stock price percentile advantages have strengthened the upside potential of the gold sector. Currently, the PE valuation levels of leading companies have fallen to a historic low of 15-20x. Considering that recent peaks in stock prices and gold prices have been highly synchronized, we are optimistic about new highs in gold prices driving new highs in stock prices.

▍On average, gold prices have risen by 10% six months after each Middle East conflict.

Reviewing gold price movements before and after 12 major Middle East conflicts since 1970, we find that short-term (daily/weekly/monthly) gold price increases are limited after the outbreak of war, but medium-term (half-yearly) increases average around 10%; during periods when at least three of the five major influencing factors (including involvement of crude oil, pre-war expectations, war speed, US dollar credit, and liquidity) are positive, the half-yearly average increase reaches 34%. In this conflict, although the first three war-related factors are uncertain due to evolving circumstances, the positive trends in US dollar credit and liquidity have not reversed. Based on historical experience, we continue to be optimistic about subsequent gold price increases.

▍We expect the resonance of continued liquidity easing and weakening US dollar credit to keep pushing gold prices higher.

In the six months following each outbreak of Middle East conflict, periods of gold price gains have coincided with positive factors in US dollar credit or liquidity, including the Yom Kippur War, Iraq War, 2008 Gaza War, Libya conflict, Israeli-Palestinian clashes, Israel-Hezbollah conflicts, and Israel-Iran conflicts. During these periods, the half-yearly average increase in gold prices reached 26%, with an excess return of 16 percentage points. Historically, the overlap of war-related factors amplifies the elasticity of gold price increases, but the medium-term trend depends on favorable US dollar credit and liquidity. For this conflict, we believe the two factors will continue to resonate:

1) The liquidity easing channel remains open, and concerns about “stagflation” provide potential catalysts. In the past three years, periods of higher-than-expected US employment data have typically accelerated gold price rises, including from March to October 2024, September to October 2025, and December 2025 to January 2026. In February 2026, US non-farm payrolls and unemployment data again pointed to weakening employment, boosting market expectations for rate cuts. We expect the Fed Chair Powell to cut rates 1-2 times by 25 basis points this year, maintaining the liquidity easing trend. Additionally, the delayed impact of tariffs and crude oil on US inflation, along with declining real interest rates in major economies in Q1-Q3, will support ETF inflows and benefit gold prices. Historically, only two wars (Iran-Iraq and Russia-Ukraine) caused oil prices to rise and prompted the Fed to tighten, leading to gold price declines. During those wars, US inflation was already high, but current static inflation and oil price transmission have significantly diminished, and US policy orientation differs. Given the higher probability and magnitude of gold price increases during stagflation periods in US history, the current heightened stagflation risk is a potential positive for gold.

2) The ongoing trend of weakening US dollar credit and the “US debt worry” premium are expected to strengthen. According to the World Gold Council, since the Russia-Ukraine conflict, the “de-dollarization” trend has continued to promote central bank gold purchases, with net purchases exceeding 1,000 tons annually from 2022 to 2024, and maintaining a high level of 863 tons in 2025. The core reason is rising market concerns over US debt issues, external interventions, and internal mechanisms, which are expected to persist. Historically, after US debt ceiling increases and surpassing the debt limit, gold prices have averaged gains of 4.4% and 11% within six months. The fiscal constraints of the debt ceiling are significantly weakened, and the cycle of continuous increases and breaches is likely to drive gold prices higher. Based on the “super-rally” of gold relative to US debt scale after the financial crisis under weakening US credit, we estimate that the current fair value of gold could exceed $5,000 per ounce. The combination of weakening US dollar credit, liquidity easing, and risk aversion could push gold prices toward $6,000 per ounce within the year.

▍Valuations as shields, gold prices as spears—gold sector may reach new highs again.

After each Middle East conflict, the CITIC Gold Index’s short-term gains are limited, but the half-yearly increase averages 35%, reaching 60% during periods with more favorable gold price factors.

The performance of the gold sector after conflicts varies, with upward or downward deviations from gold prices influenced heavily by valuation and stock price percentiles. For example, after the Gaza wars in 2008 and 2014, gold prices changed by +6.5% and -9.3%, respectively, but CITIC Gold Index surged by +136% and +58%, due to low starting valuation or stock prices.

Quantitatively, since early February, the short-term correction in the gold sector has significantly lowered stock price percentiles away from historical extremes, while valuation percentiles remain favorable. Leading companies’ expected PE ratios for 2026 have fallen to 15-20x, offering a strong margin of safety. Qualitatively, historically, the stock prices of the gold sector tend to peak 6-10 months before gold prices do. Since 2020 (especially since 2025), frequent unexpected surges in gold prices have confirmed this pattern. As gold prices reach new highs this year, the stock prices of the gold sector are also expected to reach new highs.

This article is from: CITIC Securities Research

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