Gold Price Out of Control? Largest Single-Week Drop in 15 Years! Safe Haven "Failing"?

Ask AI · How do rising interest rates temporarily weaken the safe-haven properties of gold?

In recent days, gold’s volatile performance has attracted market attention.

On March 20, spot gold prices fell below $4,500 per ounce during trading, marking the eighth consecutive day of decline. Despite ongoing tensions in the Middle East, gold, as a safe-haven asset, has performed “unusually” poorly. What are the reasons behind this?

This week, the prices of precious metals like gold and silver continued to decline in the international markets. The April futures price of gold on the New York Mercantile Exchange dropped from $5,061.70 per ounce last Friday to below $4,600 this Friday, a total weekly decline of 9.62%, the largest weekly drop in 15 years. Meanwhile, the May silver futures price fell from above $80 per ounce to below $70, with a weekly decline of over 14%. Additionally, London spot gold fell below $4,500 per ounce during trading, with a weekly decline of over 11%, marking the eighth consecutive day of decline.

Affected by the sharp decline in international gold prices, domestic gold jewelry prices also fell, with many brands dropping below 1,400 yuan per gram.

As a traditional safe-haven asset, why has gold’s safe-haven property “failed” during this Middle East conflict?

Market analysts explain that this “counterintuitive” event is mainly due to the significant suppression of safe-haven logic by interest rate dynamics during this period.

The sharp rise in international crude oil prices has directly increased concerns about inflation rebound. On March 18, U.S. time, the Federal Reserve announced it would keep interest rates unchanged. Facing inflation pressures, market expectations for the Fed to cut rates next time have been significantly delayed. Higher interest rates mean higher opportunity costs for holding gold, leading funds to flow more toward dollar assets that offer higher returns. This chain reaction has triggered a decline in gold prices.

Moreover, risk aversion has caused extreme volatility in global stock markets. Some investors, in order to cover liquidity gaps caused by falling stock prices, sold profitable gold assets, further amplifying the decline in gold prices.

Since the beginning of this year, international gold prices have experienced ups and downs. Recently, the extraordinary volatility of gold prices serves as a reminder to investors to fully understand the complexities of international financial markets, pay attention to developments in the Middle East, remain cautious and rational, and avoid chasing gains or selling in panic.

Despite the short-term sharp decline, many Wall Street institutions remain optimistic about the long-term prospects of gold. Analysts believe that ongoing central bank gold purchases, de-dollarization trends, and geopolitical uncertainties will continue to support gold prices.

Source: CCTV News, People’s Daily_

Editor: Wang Xiaoran

Images: Yitu.com, Visual China