Gold Price Retreats Year-to-Date Gains as Markets Worry About Inflation in Developed Economies

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 had 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, a decline of 15% 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 were only up about 2% year-to-date, with recent sharp declines nearly erasing the year’s gains.

In mid to late March, global financial markets declined across the board, with most commodities excluding energy and chemicals, as well as U.S. Treasuries, falling. Gold, as a safe-haven asset, was no exception. As of March 24, the COMEX (New York Mercantile Exchange) April gold futures and London gold spot month contracts both fell more than 17%, while COMEX silver futures and London silver spot prices 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 driven 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 U.S. dollar interest rates, broke above 2%, a level not seen since July 21, 2025.

Additionally, markets may sell assets to ensure liquidity. Concerns over a resurgence of inflation 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 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 pressures. For base metals like copper and lithium, the trading logic differs: demand shocks may be reflected first, followed by supply issues. The Middle East conflict could impact China’s photovoltaic exports, and high inflation may negatively affect global demand. Silver’s sharp correction follows similar logic—demand shocks in photovoltaics. However, since the Gulf region accounts for about 7% of global electrolytic aluminum production, aluminum prices are likely to reflect supply shocks first.

Looking ahead, Cheng Xiaoyong expects 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, base and precious metals are expected to stabilize and rebound gradually, while energy and chemical sectors may slow or even see significant declines. In trading strategies, extreme volatility means both long and short positions carry risks; risk hedging should be prioritized, and heavy bets on one side are not advisable.

Potential for a Bullish Rebound

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

“Currently, the market generally views the precious metals sector as ‘short-term under pressure but long-term optimistic.’” Huang Ting, a precious metals analyst at Shanghai Steel Union (300226), states that in the short term, before the Fed’s policy shift and geopolitical uncertainties clear, precious metal prices may continue to fluctuate or remain under 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, the trend of de-dollarization persists, 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.

(Edited by: Zhang Xiaobo)

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