Gold's Largest Weekly Decline in Nearly 43 Years - Is the Investment "Myth" Over?

Questioning AI · How do real interest rates dominate market fluctuations behind the sharp decline in gold prices?

CNR Beijing, March 21 (Reporter Zou Xuchen) The global precious metals market has experienced a fierce downturn. This week, international gold prices suffered an epic crash, marking the largest weekly decline in nearly 43 years since March 1983. The previously sustained strong upward trend has come to an end, drawing high attention from global financial markets.

Wind data shows that this week, spot gold fell a total of 10.49%, closing at $4,491.67 per ounce. The price repeatedly broke through several key integer levels, temporarily losing its safe-haven halo, and the market’s bullish and bearish structures have undergone intense reconfiguration.

Analysis of the reasons behind this round of gold price plunge

In addition to spot gold, Wind data also indicates that COMEX gold futures declined by a total of 11.26% this week, closing at $4,492 per ounce.

The retail market for gold jewelry also declined simultaneously. Leading brands such as Chow Tai Fook, Chow Sang Sang, Lao Miao Gold, and Luk Fook Jewelry all saw their pure gold retail prices fall. According to Gold Price Query, as of March 21, Chow Tai Fook’s retail price for pure gold dropped to 1,397 yuan per gram, down from 1,557 yuan per gram on March 15, a decrease of 160 yuan per gram.

It is important to note that although this week’s spot gold decline was severe, it has not yet reached historical extremes. Data from Investing.com shows that in 1983, international gold prices experienced even larger weekly declines.

Nankai University finance professor Tian Lihui told CNR Finance that the 1983 gold price plunge was caused by oil-producing countries selling gold to exchange foreign currency amid falling oil prices, representing a supply-side shock. In contrast, this round of sharp decline is mainly due to the Federal Reserve’s expectations management causing a sudden rise in the cost of holding gold, fundamentally a collapse in demand. Moreover, the current gold market is dominated by derivatives such as ETFs, futures options, and swaps. Algorithmic trading and programmed stop-loss mechanisms have further amplified price volatility, causing short-term deviations from fundamentals to far exceed previous levels.

Tian Lihui emphasized that the commonality between the two major declines is that short-term gold pricing is never anchored by safe-haven sentiment, but by real interest rates and the dollar’s trend. This plunge is not only a correction of overly crowded “rate cut trades” but also a rational return of the market to the environment of real interest rates.

He further analyzed that gold is not a “one-way rising” investment myth. Its price movements are driven by three variables: real interest rates, dollar credit, and risk sentiment. Excessive pricing based on any single logic will ultimately revert to equilibrium. The surface cause of this week’s gold plunge is the delayed expectation of Fed rate cuts, forcing the market to reassess the path of real interest rates. The deeper reason is a fundamental shift in gold’s pricing logic—geopolitical safe-haven giving way to inflation trading logic. Rising oil prices boost inflation expectations, prompting funds to flow from non-yielding assets like gold into dollars and US Treasuries, ultimately triggering a stampede-like sell-off.

Wind data shows that spot gold prices once surged to a high of $5,598.75 per ounce on January 29 this year, a 72.45% increase over the close on June 30, 2025, within just over half a year. However, since early March, spot gold has generally trended downward amid changing geopolitical conditions.

Spot gold price trend. Source: Wind

Qianhai Kaiyuan Fund Chief Economist Yang Delong told CNR Finance that traditionally, geopolitical conflicts tend to boost safe-haven demand for gold. However, during this Middle East conflict, the market behaved very differently. The reasons include Iran’s blockade of the Strait of Hormuz, which caused international oil prices to spike sharply, reaching $119 per barrel and fueling inflation expectations globally. Under this backdrop, the Fed was forced to delay rate cuts repeatedly, with expectations of no rate cuts this year gradually strengthening, which is a significant negative for non-yielding gold assets. Additionally, some institutions faced liquidity pressures due to declines in other asset prices and sold gold holdings to raise cash, further accelerating the downward trend.

Despite recent large fluctuations in international oil prices, Brent crude oil prices have still risen significantly compared to late February. Data from Tonghuashun shows that as of March 21, Brent crude (BRNOY) stood at $109.55 per barrel, up 49.63% from the end of February.

Brent crude oil continuous contract BRNOY recent trend. Source: Tonghuashun

Tax and finance expert Liu Zhigeng analyzed that the US dollar index, which has risen above 100 to a 1.5-year high, further shows a negative correlation with gold—“dollar up, gold down.” Funds did not flock to gold during the crisis but moved into the most liquid assets—dollars and US Treasuries—forming the so-called “dollar safe-haven siphon.” This indicates that under extreme macroeconomic pressure, gold’s safe-haven function is temporarily overshadowed by liquidity needs.

What is the future outlook for gold?

Several experts have made preliminary predictions on gold’s future price trend:

Tian Lihui said that in the short term, technical overselling may trigger a temporary rebound, but a trend reversal remains uncertain. If the $4,500 key level is broken, the next support zone will be between $4,200 and $4,300, corresponding to a dense trading area since Q3 2024. Potential catalysts for a rebound include: a softening of Fed policy signals; changes in geopolitical conflicts; and a sharp correction in US tech stocks leading to risk re-pricing. In the medium term, gold prices will depend on the trajectory of real interest rates. If US economic data remains strong and rate cut expectations are further delayed, high real interest rates will keep gold under pressure. Conversely, signs of recession could push the Fed toward easing, lowering real interest rates and opening upside potential for gold. In short, the medium-term trend of gold will hinge on the timing of Fed policy shifts and the pace of geopolitical developments.

For ordinary investors, Tian Lihui emphasizes that gold’s core value lies in its role as a “stabilizer” in asset allocation. He recommends long-term investors adopt a “gradual deployment and position control” strategy to cope with market volatility, avoiding chasing highs and selling lows. Gold investment is about long-term strategic discipline, not short-term speculation.

Liu Zhigeng stated that the recent decline in gold prices is not due to a collapse in fundamentals but results from intense competition among interest rate expectations, geopolitical risks, and liquidity. Similar to 1983, gold is experiencing a “safe-haven failure” pain period. However, compared to that time, the current bottom support is more solid. He predicts that gold’s future trend will show “short-term pressure, medium-term divergence, and long-term optimism.” The long-term positive outlook is based on gold’s role as a “pressure gauge” of the global monetary and credit system. Amid high global debt, ongoing geopolitical turmoil, and shaken currency trust, gold’s strategic value is increasingly prominent.

Yang Delong believes that with the de-dollarization process advancing in many countries, high US government debt, and continued loose dollar liquidity, the long-term upward trend of international gold prices will not change and may even reach new historical highs. However, in the short term, the magnitude and speed of this week’s decline exceeded market expectations, so investors should remain cautious of short-term corrections. He also pointed out that every major decline can be a good opportunity to deploy gold. Over the past two years, he has consistently recommended allocating 20% of assets to gold, a strategy that remains effective. Fundamentally, holding gold can effectively hedge against currency devaluation and asset depreciation.

Retired Associate Professor Lv Suiqi of Peking University’s School of Economics predicts that the fundamentals affecting gold have not changed. Short-term structural shifts may lead to market adjustments, but the long-term outlook for gold remains cautiously optimistic.