Gold Price Falls Back to $4,600, Institutions: Short-term Weak Consolidation to Continue

Reprinted from China Business Network

Reporter Qin Yufang, Guangzhou Report

In recent days, international gold prices have been volatile and declining. As of March 20, the London spot gold opening price was $4,652 per ounce, and during the trading session, it briefly fell below $4,640 per ounce. Over the past seven days, international spot gold has fallen more than 10%, with a maximum drawdown approaching 13%.

Meanwhile, on March 19, the world’s largest gold ETF, SPDR Gold Trust, held 1,062.13 tons, a decrease of 4.86 tons from the previous trading day.

Regarding this rapid decline in gold prices, financial analyst Qu Fang believes it is mainly closely related to the Federal Reserve’s policy direction. Recently, the probability of the Fed raising interest rates has decreased, pushing the dollar index back above 100, which has largely suppressed gold prices.

In addition to the direct impact of monetary policy, the transmission mechanism of crude oil prices has also become a key variable affecting gold price fluctuations.

Dongfang Jincheng’s research report pointed out that the current US-Iran situation shows no signs of easing, and crude oil prices may continue to rise, thereby boosting global inflation expectations. The report specifically mentioned that the upcoming Federal Reserve March policy meeting is particularly critical. Sustained rising oil prices could reinforce the Fed’s stance to maintain high interest rates. If hawkish voices dominate the meeting tone, gold prices will continue to be under pressure.

“Meanwhile, market concerns about liquidity tightening caused by US private equity credit withdrawals remain. Coupled with recent increased volatility in gold prices, the market needs time to digest this, and sentiment will remain cautious. Demand for the US dollar may further increase, which will also disturb gold prices. Overall, with the cooling of rate cut expectations and a strong dollar, gold prices are expected to fluctuate weakly this week,” Dongfang Jincheng clearly stated in the report.

Shanghai Xirang Industry’s chief analyst Jiang Shu further stated that the market trend in 2022 provides a similar historical example. At that time, the US-Iran conflict temporarily boosted gold prices due to safe-haven demand, but as oil prices soared and inflation expectations heated up, market expectations for US monetary policy changed, leading to a decline in gold prices. Jiang Shu specifically pointed out that the rapid surge in oil prices caused by the prolonged US-Iran conflict made the initial safe-haven-driven rise in gold prices very short-lived.

Cinda Futures also clearly pointed out in their research report that the core driving force of gold’s current trend has changed. Cinda Futures analysis believes that, from the current perspective, the core of gold’s movement lies in the upward pressure on interest rate expectations caused by rising energy prices. As the Middle East conflict persists and crude oil prices remain high—Brent crude futures previously stabilized above $100—market concerns about inflation stickiness have significantly increased. Against this backdrop, market expectations for inflation decline paths have become more cautious, weakening the pricing of rate cuts and causing the US dollar to strengthen temporarily, which suppresses gold.

Although short-term gold prices are under obvious pressure, many institutions remain optimistic about the medium- and long-term allocation value of gold.

CITIC Securities analysts believe that the continuation of two major trends—liquidity easing and weakening US dollar credit—will continue to push up gold prices. Jiang Shu also emphasized that even if soaring oil prices lead to increased expectations of Fed rate hikes, this does not change the macro trend of a continued gold bull market, only increasing the potential for mid-term corrections and longer correction periods.

Yingmi Fund Research Institute further analyzed that the medium- and long-term value of gold remains clear. Under the backdrop of unresolved US long-term debt issues, global central banks increasing gold reserves, and ongoing geopolitical risks and “re-inflation” concerns not fully dissipated, the support for gold remains strong.

However, from a short-term trading perspective, Qu Fang remains cautious about the potential for significant further rises in gold prices. “On one hand, after the previous sustained increase, international gold prices are already at relatively high levels, with profit-taking pressures. On the other hand, the outlook for Fed rate cuts remains uncertain, and geopolitical expectations are gradually being priced in, lacking further supporting factors for upward movement in gold prices.”

(Edited by: Zhang Manyou; Reviewed by: He Shasha; Proofread by: Wan Ling)