Gold prices fluctuate sharply amid near-term pressure; does the medium to long-term upside logic remain?

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By Zhang Xiangyi

Recently, gold prices have experienced significant fluctuations, attracting market attention.

From the international gold price perspective, as of the close on March 21 Beijing time, COMEX gold fell below the $4,500 per ounce mark, closing at $4,492 per ounce, a daily decline of 2.47%, with a weekly drop of over 10%. Domestic gold prices also declined simultaneously. As of the close on March 20, Shanghai Gold futures main contract was quoted at 1016.12 yuan per gram, down 1.22%.

Affected by the decline in gold prices, domestic jewelry brands generally lowered their gold jewelry prices. On March 22, brands such as Chow Tai Fook, Chow Sang Sang, and Luk Fook Jewelry all reduced their gold jewelry prices to below 1,400 yuan per gram.

Regarding this round of gold price decline, Yu Xiaoming, senior investment advisor at Shaanxi Jufeng Investment Information Co., Ltd., told Securities Daily that the main reason is that the Federal Reserve has issued strong hawkish signals, significantly cooling market expectations for rate cuts. The rise in the US dollar and US Treasury yields has also suppressed non-yielding gold.

On March 19 Beijing time, the Federal Reserve announced that the federal funds rate target range would remain unchanged at 3.5% to 3.75%. This is the second consecutive time this year that the Fed has kept interest rates steady.

Lou Feipeng, researcher at China Postal Savings Bank, believes that besides the hawkish signals from the Federal Reserve, geopolitical conflicts pushing up oil prices and increasing inflation concerns have led safe-haven funds to shift into the US dollar and crude oil, reducing demand for gold investment. Additionally, profit-taking from previous high positions and multiple negative factors have contributed to the decline in gold prices.

“In the short term, gold prices are likely to fluctuate under pressure. If the Federal Reserve begins to cut rates in the medium term, with real interest rates falling and supported by central bank gold purchases and ongoing geopolitical risks, gold prices are expected to resume an upward trend,” Lou Feipeng said. Regarding the future trend of gold prices, he stated that from a long-term perspective, influenced by supply and demand gaps and other factors, gold prices are likely to continue rising.

Qu Rui, senior deputy director of the Research and Development Department at Orient Securities, believes that future gold prices will show a “short-term pressure, medium- to long-term improvement” trend. In the short term, high oil prices will keep the Federal Reserve’s high interest rate stance longer and strengthen the US dollar, continuing to suppress gold prices. In the medium to long term, as the effect of rising oil prices diminishes and inflation gradually recedes, although the Fed’s rate cut cycle may be delayed, it will not be absent. Coupled with stable central bank gold purchases and weakening US dollar credit, gold prices are expected to fluctuate and rebound.

“In the short term, investors are advised to stay on the sidelines and avoid bottom-fishing risks, waiting for support levels to be confirmed. In the medium to long term, focus should be on key catalysts such as the Fed’s rate cut window and geopolitical developments,” Qu Rui said.

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Editor: Zhao Siyuan