Gold prices erase year-to-date gains amid market concerns over developed economies' inflation

Securities Times Reporter Zhao Liyun

“Gold prices dropped significantly a few days ago, but they haven’t fallen further today. Now is a good time to buy.” On March 24, a sales staff member at Chow Sang Sang’s store in Zhengzhou Erqi Commercial Circle told reporters that although the day’s gold jewelry price was 1,350 yuan per gram, the store was running a discount promotion, bringing the effective price down to about 1,280 yuan per gram.

Gold Prices Fall Sharply

A month ago, Chow Sang Sang’s gold jewelry was priced at about 1,590 yuan per gram, representing a nearly 15% decline over the past month.

The price fluctuations of the brand’s gold jewelry closely follow international gold price trends. On March 24, London gold prices hit a low of $4,300 per ounce, after touching a low of $4,098.25 per ounce the previous day. Although prices rebounded slightly, as of March 24, London gold prices had only increased about 2% year-to-date, with recent sharp declines nearly erasing the year’s gains.

In mid to late March, global financial markets experienced widespread declines. Most commodities excluding energy and chemicals, as well as U.S. Treasuries, fell. As a safe-haven asset, gold was no exception. By March 24, the COMEX (New York Mercantile Exchange) April gold futures and London gold spot month contracts both fell over 17%, while COMEX silver futures and London silver spot prices also dropped around 28%. Meanwhile, previously strong gains in base metals also saw significant adjustments, with LME (London Metal Exchange) copper prices falling over 9% in three months.

Middle East Conflict Exceeds Expectations

Regarding the recent overall decline in precious metals and base metals from high levels, Cheng Xiaoyong, Deputy General Manager of Guangzhou Gold Control Futures Research Center, believes there are multiple reasons.

First, the Middle East conflict has lasted longer than expected, shifting market logic from inflation caused by oil supply disruptions to a global economic recession. Triggered by two oil crises, the 1970s saw major economies worldwide enter stagflation, characterized by soaring inflation, declining consumer spending, shrinking industrial output, and slowed economic growth. IMF research shows that a 10% increase in energy prices sustained for a year can raise global inflation by 40 basis points and slow economic growth by 0.1%–0.2%.

Meanwhile, high oil prices have led markets to expect the Federal Reserve to pause easing monetary policy, or even shift to tightening next year. The March Fed meeting, as expected, paused rate cuts, and the dot plot released afterward indicated only one 25 basis point rate cut in 2026, with one official even projecting a rate hike next year. For most assets, especially precious and base metals, rising real interest rates increase holding costs. As of March 23, the yield on 10-year TIPS (Treasury Inflation-Protected Securities), which measures real dollar interest rates, broke above 2%, a level not seen since July 21, 2025.

Additionally, markets may sell assets to ensure liquidity. Concerns over inflation resurgence in developed economies and the Fed’s pause in rate cuts have tightened dollar liquidity and triggered a broad market decline, causing private credit markets to face crises. Investors are continuously selling assets like stocks and gold to raise cash and reduce leverage.

Cheng Xiaoyong also points out that high oil prices raise concerns that central banks might sell some gold to counteract inflation and import payment shocks. For base metals like copper and lithium, the trading logic differs: demand shocks for new energy materials may be reflected first, followed by supply issues. Due to the Middle East conflict, China’s photovoltaic exports to the Middle East could be affected, and the global economy’s inflation impact might dampen demand. Silver’s sharp correction follows similar logic—demand shocks in photovoltaics. However, since the Gulf region is a major electrolytic aluminum producer accounting for about 7% of global output, aluminum prices tend to reflect supply shocks first.

Looking ahead, Cheng Xiaoyong believes that the duration of the Middle East conflict remains a key factor influencing the trends of base and precious metals. Although the conflict has lasted longer than expected, both Israel, the U.S., and Iran face multiple pressures, making negotiations increasingly feasible. However, oil supply recovery will take time. The market’s recession logic may weaken, shifting focus back to AI and other tech-driven growth, de-dollarization, and supply shortages in base metals. As a result, prices of base and precious metals are expected to stabilize and even rebound, while energy and chemical sectors may slow or see significant declines. In trading strategies, extreme market volatility poses risks for both long and short positions; risk hedging should be prioritized, and heavy bets on one side are not advisable.

Potential for a Rebound in the Future

Huang Jiaqing, a precious metals analyst at Zhuochuang Information, believes that gold’s safe-haven properties and its role as a ballast asset still exist, but repeated price fluctuations have somewhat weakened market confidence. The macro outlook remains uncertain, and future trends will depend on several factors related to Federal Reserve monetary policy: whether the Middle East situation continues to push up energy costs, whether the tariffs previously imposed by Trump need to be refunded, whether the new tariff framework can be implemented, and how U.S. non-farm payrolls and March CPI data influence rate cut expectations. Investors are advised to consider their risk tolerance, control positions reasonably, and invest cautiously.

“Currently, the market generally views the precious metals sector as ‘short-term pressure, long-term optimism.’” Huang Ting, a precious metals analyst at Shanghai Ganglian Lead and Zinc Information, states that in the short term, before the Fed’s policy shift and geopolitical uncertainties clear up, precious metal prices may continue to fluctuate or face downward pressure. The market needs time to digest the impact of hawkish policies and wait for new stabilization signals. In the medium to long term, the foundation supporting a gold bull market remains intact. Central banks worldwide continue to buy gold, de-dollarization trends persist, and concerns over the dollar’s creditworthiness remain. Many institutions believe that the current deep correction is a normal market adjustment, and once market sentiment stabilizes, gold prices are likely to resume their upward trend.