International gold prices continued to fall as the new trading week began on the evening of the 22nd, Eastern Time. The April gold futures contract on the New York Mercantile Exchange dropped to a low of $4,322 per ounce, significantly below the closing price of $5,247.9 per ounce on February 27, indicating a nearly 20% decline since the onset of the U.S.-Israel-Iran conflict. Spot gold in London recorded a weekly loss exceeding 10%, marking its steepest single-week drop in six years. Analysts attribute this downturn to multiple factors, including diminished expectations for interest rate cuts and tightening liquidity, which have overshadowed gold's traditional role as a safe-haven asset.
On one hand, Middle East conflicts have driven up global energy prices, fueling inflation expectations and reducing market anticipation of central bank rate cuts. This has diminished the appeal of holding gold. Federal Reserve Chair Jerome Powell emphasized uncertainty regarding the impact of rising oil prices on consumption, indicating a cautious approach. Similarly, due to inflation concerns, the Bank of Canada, European Central Bank, and Bank of England have maintained current interest rates, signaling readiness to act swiftly if needed to curb inflationary pressures. The European Central Bank noted that the Middle East situation has heightened economic uncertainty, posing both upside risks to inflation and downside risks to growth.
Tighter monetary policies by multiple central banks are likely to bolster the U.S. dollar, dampening investor demand for precious metals like gold and silver. During periods of global geopolitical turmoil, dollar-denominated assets often attract market favor. However, the dollar's strength only partially explains the current decline in gold prices. The U.S. Dollar Index, which measures the dollar against six major currencies, did not surge significantly, closing at 99.641 on March 20, only a modest 2% increase from 97.608 on February 27.
On the other hand, gold's failure to meet safe-haven expectations also stems from investors crowding into popular trades. Analysis by The Wall Street Journal highlights that gold trading had been exceptionally active over the past year, and selling gold became an immediate market response post-conflict, driven by caution or debt repayment needs.
Despite short-term headwinds, many market analysts remain optimistic about gold's long-term prospects. Rich Checkan, President and Chief Operating Officer of International Assets Strategy, stated that the fundamentals for gold and silver have not changed over the past month, and the gold market is expected to rebound from this period of excessive adjustment. Adrian Day, President of Adrian Day Asset Management, concurred, noting that the underlying reasons for investors' gold purchases in recent years persist, and fundamental monetary and fiscal issues supporting the gold bull market will reemerge once the conflict subsides or stabilizes.