According to a research report released by Guotai Haitong Securities Co., Ltd., gold prices have continued to weaken recently. On one hand, the significant gains in gold earlier make it vulnerable to liquidity shocks from capital outflows when risk appetite declines. On the other hand, market expectations of monetary policy tightening have driven real interest rates higher, which also weighs on gold. The firm believes that in the short term, gold may still face periodic pressure due to the Iran situation. However, if long-term inflation expectations rise, the environment could turn favorable for gold again. The logic supporting a medium-to-long-term rise in gold remains solid. Investors may still consider allocation opportunities during volatile declines. Key views from GuTHT are as follows:
After the escalation of geopolitical conflicts: Why has gold fallen? First, gold had already seen substantial gains driven by speculative funds and exhibited characteristics converging with risk assets. When geopolitical tensions rise and risk appetite falls, gold becomes susceptible to liquidity shocks from capital withdrawals. Second, real interest rates have risen noticeably amid expectations of monetary tightening, putting pressure on gold as a non-yielding asset. Third, gold's safe-haven rally had already been largely priced in during the U.S.-Iran tensions in late February. When military conflict actually occurs, profit-taking based on "selling the fact" weakens gold's safe-haven appeal.
Demand breakdown: Who is selling gold? The current downward pressure on gold mainly stems from continued outflows of American funds. Investment enthusiasm for gold in the Americas is closely tied to expectations of interest rate cuts. As monetary policy expectations shift and concerns about rate hikes increase, selling pressure on gold becomes more pronounced during American trading hours. Data from the World Gold Council also shows that gold ETFs in the Americas have experienced consistent outflows since March. In contrast, gold prices have remained relatively firm during Asian trading hours, with Asian gold ETFs continuing to see inflows.
Future outlook: The foundation for a gold bull market remains intact. If the Iran conflict escalates further in the short term, energy prices could surge again, potentially amplifying market concerns about inflation and monetary tightening by major central banks. Gold may continue to face periodic pressure. However, if oil prices remain elevated for an extended period, inflation expectations could rise significantly. In that scenario, the Federal Reserve may find it difficult to raise rates quickly due to concerns about economic downside risks. Real interest rates could then fall amid rising inflation expectations, which would benefit gold. Additionally, if oil prices stay high for a prolonged period, market focus may gradually shift from trading monetary tightening to "stagflation" (low growth alongside high inflation), potentially opening further upside for gold. In the long run, the logic supporting a medium-to-long-term rise in gold remains solid. Investors may still look for allocation opportunities during periods of volatile decline.
Risk warning: Continued escalation of U.S.-Iran tensions could lead to another surge in oil prices.