Source: Into The Depths
Author:
Huachuang Securities Chief Economist Zhang Yu License No.: S0360518090001
Core Viewpoints
Recently, due to the escalation of the U.S.-Iran conflict, some emerging markets are facing localized liquidity crises, and gold has experienced indiscriminate short-term sell-offs in response to liquidity needs, triggering market concerns. However, by building a "liquidity fragility model" and a "liquidity shock model," our calculations show that short-term potential selling pressure has a limited impact on the gold market, which sees a daily trading volume of $360 billion, and is insufficient to affect the long-term price anchor of gold. In fact, this process is facilitating a structural transfer of gold reserves from fragile countries to strategic powers. The three underlying logics supporting the long-term bull market in gold—"order restructuring, imperial radicalism, and neutral hedging"—are being continuously validated and strengthened. Therefore, we maintain our decade-long strategic bullish view on gold and recommend seizing configuration opportunities arising from liquidity shocks.
Report Summary
Dispelling Fog: Short-term disturbance caused by localized liquidity shocks.
In early 2026, amid rising geopolitical tensions, the market broadly feared that emerging markets would sink into liquidity crises, triggering a systemic "global gold selling wave." However, upon analyzing the micro data, of the roughly 80 tons of central bank gold sold at the start of the year, the sales were in fact dominated by only two countries: First, Turkey, under the dual strain of energy imports and currency depreciation (sold around 60 tons); second, Russia, facing strict fiscal constraints (reduced holdings by about 14 tons). Aside from these two, no other individual country or regional central bank reduced more than 2 tons.
It is evident that the current "global gold selling wave" is in reality a passive monetization by a handful of fragile countries responding to liquidity pressures
.
Quantitative Insights: Fragile country profiles and stress testing.
To accurately assess the real scale of potential selling pressure,
we constructed a national liquidity fragility scoring model across four key dimensions: external debt coverage, current account deficit ratio, currency depreciation pressure, and proportion of gold in reserves
. Calculations show that potential selling may be concentrated in Greece, Turkey, and Central Asian gold-producing countries such as Kyrgyzstan.
After identifying high-risk targets, we introduced a liquidity shock model for extreme stress testing
: assuming the ten most fragile countries are forced to liquidate 50% of their gold reserves (around 927 tons). In the face of the $361 billion daily liquidity of the global gold market, this concentrated selling accounts for 40.2% of a single day's liquidity. Even under extreme assumptions, the actual price impact is only about 0.76%, making it difficult to substantially disrupt the market.
However, it must be emphasized that the theoretical estimate of this model is severely limited in scope
. The square root model only quantifies "pure execution friction" based on underlying physical and large-scale OTC swaps. In reality, when gold trading is highly crowded, the actual market price drawdowns may far exceed the theoretical values of the model. In our previous work using the Amihud (2002) liquidity model to estimate Bitcoin capital outflows boosting gold prices, price pressure tests for sovereign gold sales instead used the Almgren (2005) square root model. This is not a matter of shifting metrics, but rather a consideration for the market microstructure of gold, including differences in trading pathways, liquidity depth, and the "asymmetry" of liquidity absorption.
Historical parallels & chip transfer: deep turnover of microstructure.
In the short term, if up to 927 tons of extreme selling pressure is unleashed over several months, this would certainly cause a severe short-term supply-demand mismatch in the gold market—and could easily trigger cross-asset margin calls, derivative long squeezes, and market maker withdrawal, leading to nonlinear negative feedback and violent price swings. For example, the pullback in gold prices in January 2026 exceeded the largest drawdown observed between 2023 and 2025.
However, looking back at the 2008 subprime crisis and early 2020 pandemic, gold has consistently recovered to "stabilization-recovery-new highs" after brief indiscriminate sell-offs. The current round of localized selling is no different. The extreme selling cap of 927 tons accounts for about 90% of the world's central banks' annual gold purchases, and has not breached the annual absorption capacity of strategic national buyers. Its
essential effect is to promote a deep shift of reserve assets from fragile countries to large countries with strategic resolve
.
The latest data supports this logic: during the recent gold price correction,
China’s central bank increased holdings by 16 tons in March 2026, demonstrating robust strategic absorption
; World Gold Council surveys show that 95% of surveyed central banks still plan to add to reserves in 2026. Structural improvement and accumulation at the micro level lay the foundation for gold's long-term price appreciation.
Strengthening of fundamental logic: three pillars of the new era of gold pricing.
Penetrating short-term trading disturbances, the three core arguments for our decade-long bullish outlook on gold are not only unshaken in the current macro environment but have been further validated and reinforced:
Rebuilding the global order
: The old world order is rapidly collapsing. Under geopolitical stress and rising insecurity, global demand for truly ultimate safe-haven assets is surging, and the non-dollar system is accelerating de-dollarization, with increasingly strong incentives to add gold reserves.
Imperial radicalism at the inflection point
: From a historical cycle view, hegemonic states at the inflection point tend to adopt "financial weaponization" and geopolitical pressure. The high cost of such maintenance is continuously eroding long-term confidence in the dollar, thus fundamentally bolstering the case for gold’s long-term upside.
Hedging in a vague world
: In an era of escalating uncertainty, gold is among the very few assets still positioned in true "neutral territory." Its dual low correlation with both U.S. financial assets and China’s real-economy manufacturing assets gives it an irreplaceable role in optimizing investment portfolios.
Risk warning: Geopolitical developments beyond expectations, central bank gold buying slows, failure of quantitative model assumptions, or breakdown of historical relationships.
Report Table of Contents
Full Report
I. Introduction: Liquidity Anxiety Under Geopolitical Disturbances
Recently, with the ongoing escalation in U.S.-Iran tensions and other geopolitical risks, the principal line of global macro trading is shifting. The market was previously focused on the macro narrative of "de-dollarization" and "ongoing central bank gold purchases," but the sudden rise in Middle East tensions has caused tremendous pressure on the currencies and foreign exchange reserves of certain emerging markets.
Concerns are spreading rapidly: Will fragile countries like Turkey be forced to adopt a "gold-selling for FX" survival strategy due to collapsing liquidity?
Such concerns are not without foundation. According to recent high-frequency data, the global gold market did indeed experience a highly-watched, event-driven round of selling in early 2026. According to World Gold Council statistics, global net central bank gold purchases fell to just 5 tons in January 2026 (a sharp drop from the 2025 monthly average of 27 tons).
Of the roughly 80 tons sold, the bulk was led by these two high-stress nations
:
First is Turkey (a classic case of liquidity squeeze)
: As the main seller in the latest wave, the escalation of the U.S.-Iran conflict at the end of February 2026 directly drove up crude oil and other energy import costs. To stabilize the lira and deal with liquidity shocks, Turkey's central bank liquidated about 60 tons of gold reserves, mainly via London vault swaps—marking its largest single reduction in seven years. Here, gold served essentially as Turkey’s liquidity tool.
Second is Russia (fiscal extremity being depleted)
: Due to large deficits from sanctions and military expenditures, Russia's traditional financing channels were constrained, leading to sales of roughly 14 tons over January–February 2026, reducing holdings to a four-year low.
In addition, a handful of minor reductions from Bulgaria (EU euro accession payments), Kazakhstan and Kyrgyzstan (tactical rebalancing among gold-producing countries) amplified the market’s downside consensus.
"Forced liquidation of high-liquidity assets in emerging markets" has become the market's widely cited key logic for gold's price cap. However, penetrating the micro data, the roughly 80-ton central bank sales at the start of the year were really led by just two countries: Turkey (roughly 60 tons due to energy import and depreciation pressures), and Russia (about 14 tons due to fiscal stress). No other country or region's central bank sold more than 2 tons.
Thus, the sales earlier in the year were essentially emergency moves in response to geopolitical and energy shocks, not a reversal of the global central bank gold-buying trend
. Major nations like China and India, with strong foreign exchange buffers, remain key buyers.
Faced with this highly event-driven liquidity shock, we move beyond the specifics of individual countries to construct a "fragile country gold selling stress test" model, taken from the angle of extreme pressure, to measure the true scale of potential sell-side forces and use historical analogs to determine whether they are sufficient to disrupt gold’s long-term price anchor.
II. Screening high-liquidity-risk countries with potential gold-for-FX motives
To cut through short-term sentiment fog and accurately assess the true size of potential selling, we go beyond the narrative of "emerging markets under pressure" and, starting from the fundamentals, construct a "national liquidity fragility scoring model" to subject major economies around the world to an extreme liquidity stress test.
(1) Indicator selection rationale
A country will only consider its gold reserves as a last-resort liquidity tool when facing extreme external liquidity drought and traditional interventions have failed. Based on this chain of causality, we selected four macroeconomic variables:
Dimension 1: External Debt Coverage Ratio (Weight 30%)
— The direct driver of liquidity collapse. Measured by "external debt/foreign reserves." If this is very high, the nation cannot even roll over USD liabilities when capital flees, so it sells gold for USD as a liquidity measure.
Dimension 2: Current Account Deficit Ratio (Weight 30%)
— Speed of external deficit. Measured by "current account balance/nominal GDP." Large structural deficits mean reliance on external financing. Spikes in crude oil and other commodities due to events like the U.S.-Iran conflict worsen the current account and rapidly deplete FX reserves.
Dimension 3: Currency Depreciation Pressure (Weight 20%)
— Expression of panic. Measured by “depreciation against USD over the past year.” The exchange rate is the ultimate macro pressure relief valve; extreme depreciation forces central bank intervention, and when FX runs out, only gold remains.
Dimension 4: Share of Gold in Reserves (Weight 20%)
— The physical ammunition for sales. Measured by “gold’s share of total reserves.” The higher the proportion, the more likely the sovereign will sell gold for FX in a crisis.
(2) Data characteristics and model results
The above indicators were standardized and weighted. Results show that under dual pressure from geopolitics and a strong USD, the five countries/regions facing the greatest liquidity pressure today are: Greece, Kyrgyzstan, Turkey, Bolivia, and Ukraine.
Notably, after excluding offshore financial centers such as Luxembourg, Cyprus, and the UK (whose high debts are really financial system cross-border liabilities), as well as eurozone nations,
the countries suffering substantial geopolitical and gold-selling pressure are concentrated in Turkey and Central Asian gold producers (Kyrgyzstan, Kazakhstan)
.
(2) Analysis of core gold-selling countries
First is Turkey
: the absolute 'eye of the hurricane' for selling pressure. Turkey has long scored high in fragility, suffering both massive current account deficits and extreme depreciations. Critically, it officially holds 754 tons of gold. Under the twin pressures of geopolitical contest and defending the lira, Turkey has both strong motives and large capacity to flood the market with gold, making it a core factor in gold's recent price weakness.
Next is Kyrgyzstan and other Central Asian nations
: Tactical selling amid structural imbalances. Taking Kyrgyzstan as an example, it faces extreme macro imbalance: a current account deficit of -16.6%, external debt levels 7.2x FX reserves, and gold making up 80.5% of reserves. In a crisis, its 47 tons of gold can easily be liquidated as a temporary buffer for the economy.
In summary, the current market concern is not groundless, and our model clearly identifies Turkey and other "high-risk sellers." However, pinpointing the list is only step one; what truly determines the gold market trend is the absolute magnitude of the selling. Next, we stress test the high-risk list for maximum pressure.
III. The limited impact of short-term gold selling from three perspectives
Having clarified the sources and scale of potential supply, we assess the real impact from the perspective of historical experience, microstructure, and quantitative modeling. Market fears often arise from linear extrapolation of unknown supply—but our calculations show that with the global gold market’s $300+ billion daily turnover, such event-driven concentrated selling from localized liquidity shocks in fact has a limited effect. The recent market pressure is largely a short-term sentiment-driven disturbance unlikely to damage the long-term price anchor of gold.
(1) Perspective one: Historical review of liquidity shocks
The “gold selling for FX” that the market fears today has historical parallels. Review of past liquidity crises shows gold is often sharply sold off, but subsequently rebounds and reaches new highs.
1. Analogy one: Forced sales by emerging markets
When emerging markets face currency collapses or liquidity crises, selling gold for liquidity is standard, but this has never really reversed gold’s upward trend
. For example, in Q3 2020, thanks to the pandemic and currency collapse, emerging market central banks led by Turkey and Uzbekistan were forced to sell gold, causing the first net quarterly central bank sales in a decade. In spring 2023, Turkey—hit by inflation and lira collapse—sold over 160 tons of gold reserves in just a few months. Yet these sovereign “dumpings” were quickly absorbed by strategic buyers in China, Poland, and Singapore, with gold not only failing to crash, but soon making fresh highs.
2. Analogy two: Global liquidity shocks
Even if the current localized gold selling is amplified to the scale of global USD shortages seen during Lehman 2008 or the Covid circuit breakers of March 2020, gold—despite brief liquidity-driven price drops (down over 25% in H2 2008 and over 10% in a single week in March 2020)—rapidly turned around, regaining stability and leading subsequent bull runs once panic passed.
More importantly, the current macro situation differs from those crises: the global system (especially U.S. financial conditions) is still loose, and there is no true dollar shortage. Current pressure is almost entirely from a few event-driven countries like Turkey and Russia.
Historical experience shows: neither Turkey's concentrated 160 tons sale in 2023, nor Lehman 2008's global liquidity contraction, nor the Covid panic, overturned the long-term gold uptrend
. By comparison, today's less-than-100-ton event-driven sales limited to a few emerging markets clearly have even less ability to disrupt gold's long-term anchor.
(2) Perspective two: Extreme pressure test of central bank gold sales
For quantification, we suppose the top ten most fragile countries (Greece, Kyrgyzstan, Turkey, etc.) face all-out liquidity crises and must liquidate reserves within three months, setting two scenarios
: (1) Moderate sales (30% of holdings)—about 556 tons or $87 billion; (2) Extreme (50%)—927 tons for a notional $145.1 billion.
$145.1 billion sounds huge, but when placed against the microstructure of the gold market using the classic square root market impact model (Almgren et al.), the damage is diluted. The model computes asset price slippage from physical trading throughput:
Here, ∆P/P is price impact; Y is an institutional impact factor (conservatively set to 1.0), σ is gold's daily volatility (~1.2%), Q is amount sold; V is daily market turnover.
According to the World Gold Council, in 2025, gold’s average daily trading value was around $361 billion
. Of this, $180 billion was OTC (“spot contracts”), $174 billion was exchange-based futures, and gold ETFs backed by physical holdings added about $7 billion per day. So a $145.1 billion max sale equals 40.2% of single-day liquidity.
Plugging into the model, the moderate scenario (30% sale) produces theoretical slippage of only 0.59%, while the extreme case (50%) is just 0.76%.
.
However, it must be stressed: the theoretical value of this model is extremely limited.
The square root model only measures “pure execution friction” from physical and large OTC swaps
. In extreme trading environments (such as the deep pullback in January this year), if this regional sovereign selling is caught by speculators, it can rapidly start cross-asset margin calls, long cascades in derivatives, and market maker withdrawals, causing nonlinear negative feedback. Therefore, in a short-term liquidity vacuum, actual price drawdowns may far exceed theoretical model output.
Applying the model, the moderate scenario (30% sales) yields an actual physical price shock of just 0.59%; even the extreme scenario (50% sold) caps out at just 0.76%.
Moreover, nearly all sovereign-level gold sales are conducted in the London OTC swap market
. This targeted selling does not require time-based diversification and can be absorbed seamlessly through the global market makers network, making “flash crash” events on the public futures market unlikely.
Notably, in our previous article
Zhang Yu: Gold “Rhapsody”—Gold Price Simulations in Five Extreme Scenarios
, we used the Amihud (2002) liquidity shock model to estimate the upside impact of Bitcoin capital outflows into gold; for sovereign sales, we moved to the Almgren (2005) square root model—not a change in standard, but due to gold’s market microstructure.
First, there is a fundamental difference in trading pathways and liquidity depth
. Bitcoin capital flows to gold mainly via retail and public institutions continuously buying gold ETFs and COMEX futures, and shallow open order books cause continuous unidirectional buying to severely impact prices—this is what Amihud (2002) is designed to capture as “daily liquidity friction.” But sovereigns like Turkey and Kyrgyzstan rarely use open-market futures, instead relying on the huge OTC swap network of the London Bullion Market Association. Such targeted sales are directly absorbed by global gold dealers and strategic central bank buyers. The square root model is especially for assessing one-off, block transaction slippage.
Second, there is “asymmetry” in liquidity absorption
. The gold market is non-symmetric: when speculative money floods in to buy in open markets, friction costs are high and depth is thin; but under today’s macro regime, non-U.S. national buyers (China, India, the Middle East) are eager for strategic de-dollarization. Sovereign-sized supply in the OTC market is easily absorbed by this “strategic buying wall.” Hence, the low slippage calculated by the square root model reflects the true depth of current market absorption.
(3) Perspective three: Optimization of gold reserve structure
In the short run, an extreme 927-ton supply surge over months would seriously skew gold market supply-demand, possibly causing margin calls, derivative squeezes, and market maker withdrawal feeding negative feedback cycles—for example, January 2026’s gold drawdown exceeded any seen from 2023–2025.
But from a long-cycle perspective, this extreme potential selling of about 927 tons, though huge, is only about 90% of the annual net central bank gold demand globally—meaning the annual absorption capacity of major national buyers has not yet been breached.
Thus, this liquidity-driven selling is actually facilitating a deep rotation of sovereign reserves
: gold is shifting out of liquidity-constrained emerging markets into central banks with major strategic resolve. This optimization and accumulation at the micro level not only fails to disrupt gold’s long-term price logic, but actually strengthens price support by solidifying ownership among strong hands.
Amid recent price weakness and fears of central bank panic selling, China increased its gold holdings by 16 tons in March 2026—a dramatic rise compared to February’s 3-ton gain. Moreover, according to the World Gold Council’s 2025 survey, 95% of central banks think 2026’s total gold reserves will keep rising. So this microstructure solidification may not only avoid weakening the bullish case for gold, but actually flush out weak hands, paving the way for new record highs.
IV. Liquidity shocks strengthen gold's three fundamental logics
The use of gold as a liquidity tool under extreme stress by some fragile countries has, in the short term, suppressed prices. But penetrating trading disturbances, this localized crisis triggered by geopolitics does not damage gold’s bullish foundation. Instead, it further validates and strengthens the three fundamental logics supporting gold’s long-term bull market.
Since the end of 2023, we have maintained a “decade-long strategic bullish” view on gold. We believe the latest volatility in gold prices is not due to fundamental deterioration, but rather because performance has been “too good.” The global liquidity shock from the U.S.-Iran conflict plus diminished expectations for rate cuts has plunged the market into “when in doubt, sell” mode.
As the first-tier asset with the fattest floating gains and best liquidity, gold was temporarily viewed as a liquidity source and sold by institutions. Yet, the disturbance is short term. Cutting through liquidity fog, gold’s three fundamental bullish logics are not weakened, but instead reinforced by this crisis.
(1) Rebuilding the global order: catalyst for de-dollarization
The old world order is accelerating toward collapse, increasingly turbulent and unpredictable. This is no longer a theoretical macro scenario, but a reality at hand. Against the backdrop of intense geopolitical pressure and pervasive insecurity, demand for true ultimate safe haven assets is skyrocketing, and the non-U.S. bloc’s push toward de-dollarization—adding gold reserves—will only strengthen.
This is not just a theoretical macro story, but is being validated by official reserves and institutional asset allocations across dimensions
.
First
, global central banks’ expectations for the long-term role of the dollar as a reserve currency are now meaningfully shifting. While the dollar remains the world’s primary reserve asset, the World Gold Council’s central bank survey shows that de-dollarization has become the wide consensus: as many as 73% of central banks surveyed expect the dollar share of reserves to drop further over five years.
Second
, microstructure and real institutional asset allocation confirm a contraction in dollar trust. Bank of America’s March 2026 global fund manager survey shows 24% of investors underweight the dollar.
(2) Imperial radicalism at the inflection: cyclical adventurism
From a historical cycles perspective, when hegemonic powers reach inflection points in the world order, they often pursue aggressive realism, up to the point of adventurism or speculation, seeking to extend their era and delay decline. The costs and risks are high, and repeated failures erode strength and trust faster.
From Venezuela to the recent Iran crisis, the U.S. appears to be drifting toward this type of imperial radicalism and adventurism
. This trend gradually erodes the foundation of the dollar’s long-term trust, supporting gold’s uptrend.
(3) Hedging in a fuzzy world: truly "neutral" asset
In an uncertain "fuzzy world," the correlation of traditional assets is breaking down, and gold’s unique hedging value is being highlighted. From an asset allocation perspective, gold is the true “neutral” asset: it is barely correlated with financial assets of developed countries (especially the U.S.), and also with real-economy manufacturing and commodity assets (mainly China).
This rare combination of dual low correlations provides significant portfolio optimization, broadening and improving risk/return frontiers
.
V. Conclusion: Remain strategically bullish and maintain strategic awe for gold
Penetrating recent market volatility, the three major bullish logics are not only unweakened in the current macro regime, but have been deeply strengthened. The short-term liquidity crunch has merely created a tactical mispricing in asset prices. Our core conclusion remains: maintain a "decade-long strategic bullish stance" on gold—the current correction does not reverse the underlying logic, but presents a high-confidence dip-buying opportunity.
Macroeconomic logic is solid; however, within real-world asset allocation frameworks, gold’s underlying attributes—high volatility and zero yield—cannot be overlooked. Its long-cycle return trajectory is often accompanied by sharp swings. Therefore, investors focused on “decade-long” holding should also be aware of the sometimes uncomfortable holding experience, and plan accordingly based on their own risk preferences in order to capture the rewards of a turbulent macro era.
For more details, please refer to the Huachuang Securities Research Institute's April 23
report
released on the same day:
"[Huachuang Macro] Why Is Short-Term Selling Unlikely to Shake Gold’s Price Anchor?—Maintaining a Strategic Medium-Term Bullish Outlook on Gold."
Editor: Wei Zirong
