Guotai Haotong: Gold May Face Short-term Pressure from Iran Situation, but Medium to Long-term Uptrend Logic Remains Solid

Cathay Securities and Haitong Securities released a research report stating that recent gold prices have continued to weaken. On one hand, due to the previous significant gains in gold, a decline in risk appetite may lead to liquidity shocks as funds withdraw; on the other hand, market expectations of monetary policy tightening driving up real interest rates are also negative for gold. The firm believes that in the short term, gold may still face periodic pressure influenced by the Iran situation, but if long-term inflation expectations heat up, the environment could turn favorable for gold again. The logic for long- and medium-term gold price increases remains solid. Investors can still look for opportunities to allocate in gold during periods of volatility and decline.

Key points from Cathay Securities and Haitong Securities:

After geopolitical tensions escalate: Why does gold fall? First, gold had previously surged due to speculative funds, showing characteristics similar to risk assets. When geopolitical tensions intensify and risk appetite declines, liquidity shocks from fund withdrawals are likely. Second, real interest rates have risen significantly under market expectations of monetary policy tightening, and as a non-yielding asset, gold is also pressured by rising real interest rates. Third, the safe-haven rally for gold already started to ferment in late February when tensions between the US and Iran escalated. Once military conflicts actually occur, profit-taking from “selling the fact” weakens gold’s safe-haven appeal.

Demand analysis: Who is selling gold? The current correction in gold prices is mainly driven by continuous outflows of funds from the Americas. Investment enthusiasm for gold in the Americas is highly correlated with expectations of rate cuts; when monetary policy outlook shifts and concerns about rate hikes increase, downward pressure on gold during the American trading session becomes more evident. Data from the World Gold Council also shows persistent outflows from gold ETFs in the Americas since March. In contrast, gold prices during Asian trading hours remain relatively resilient, with continued inflows into Asian gold ETFs.

Future outlook: The foundation for a gold bull market remains. If the Iran conflict further escalates in the short term, energy prices may spike again, amplifying concerns about inflation and major central banks tightening monetary policy, which could temporarily pressure gold. However, if oil prices stay high for an extended period, inflation expectations could rise sharply. At that point, the Federal Reserve may find it difficult to raise interest rates quickly due to concerns about economic slowdown, and real interest rates could fall amid rising inflation, which would be positive for gold. Additionally, if oil prices remain high for a long time, market focus might shift from monetary policy tightening to stagflation (low growth combined with high inflation), providing further upside for gold. In the long run, the logic for medium- and long-term gold price increases remains robust. Investors can still look for opportunities to allocate during periods of volatility and decline.

Risk warning: Continued escalation of US-Iran tensions could drive a second surge in oil prices.