Gold Continues to Decline, Why Are "Safe-Haven Assets" Failing to Provide Shelter?

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Source: Xinhua Finance

Since March, the Middle East situation has remained tense, yet gold, known as a “safe-haven asset,” has fallen for three consecutive weeks, possibly ending its previous seven-month rally. Why has gold “kept falling”? What is the outlook?

On March 19, London spot gold prices continued to decline, briefly reaching around $4,500 per ounce during trading, down over 13% since the end of February, and nearly 20% below the record high of $5,596 per ounce on January 29. Notably, gold has fallen for seven consecutive trading days since March 11. Compared to the six-day decline in November 2024, the current drop is larger and lasts longer.

Looking at domestic gold prices, the Shanghai Gold Exchange spot gold closed at 1,061 yuan per gram on March 19, down 4.6% from the previous trading day. Since March, the RMB gold price has fallen by a total of 7%. As a result, jewelry prices have also plummeted, with many brands’ gold jewelry prices dropping more than 40 yuan per gram compared to the previous day. Since March, the per-gram price of many brand gold jewelry has fallen by over 100 yuan.

Generally, geopolitical conflicts tend to increase market risk aversion, pushing up gold prices. For example, after the Russia-Ukraine conflict erupted in February 2022, gold prices surged within half a month. However, since the outbreak of conflicts involving Israel and Iran, oil and the US dollar have soared, while gold has continued to decline.

“The counterintuitive movement of gold prices mainly stems from the significant suppression of safe-haven logic by interest rate dynamics,” said Qu Ruì, Senior Deputy Director of Research and Development at Dongfang Jincheng. “The ongoing Middle East conflict prolongs, and rising oil prices boost global inflation expectations, which may reinforce the Federal Reserve’s stance to keep interest rates steady, thereby suppressing precious metals.”

On March 18, the Federal Reserve announced that the target range for the federal funds rate would remain unchanged at 3.5% to 3.75%. This is the second consecutive pause in rate hikes this year. “Expectations of rate cuts have diminished, and the US dollar’s temporary safe-haven advantage has become more prominent, among other factors, leading to a short-term divergence between gold prices and geopolitical risks,” said Liu Richeng, Trading Manager at Shandong Energy Group.

However, some analysts believe that despite short-term pressure, long-term demand for gold still has support.

On January 29, customers select gold jewelry at a jewelry store in Qionghai, Hainan Province. Xinhua News Agency (Photo by Meng Zhongde)

UBS analyst Tvers stated that, from a medium- to long-term perspective, ongoing geopolitical tensions could slow global economic growth, prompting worldwide fiscal and monetary stimulus measures, which would create room for gold to rise.

Shenwan Hongyuan Futures believes that concerns over the sustainability of US fiscal policy are intensifying, coupled with the global reorganization of political and economic order, diversification of central bank reserve assets, and the ongoing process of de-dollarization. These factors suggest that gold may maintain a long-term upward trend.

Qu Ruì reminds that in the short term, gold’s movement still requires close attention to factors such as the Federal Reserve’s rate cut window and developments in the Middle East, and to be alert to potential risks like unexpected inflation spikes and expanding geopolitical conflicts. (Reporters: Ren Jun, Chen Yunfu)

Disclaimer: Xinhua Finance is a national financial information platform built by Xinhua News Agency. Under no circumstances does the information published on this platform constitute investment advice.