News Analysis | Why Gold Plummeted Amid Middle East Geopolitical Crisis

Xinhua News Agency, New York, March 22 — News Analysis | Why Gold Plunged Amid Middle East Geopolitical Crisis

Xinhua Reporter Xu Jing

In the new trading week beginning the evening of March 22 Eastern Time, international gold prices continued to decline. The April gold futures price on the New York Mercantile Exchange briefly hit a low of $4,322 per ounce, well below the $5,247.9 per ounce closing price on February 27, indicating that gold has fallen nearly 20% since the U.S.-Israel-Iran conflict began. Last week, London spot gold prices fell over 10%, marking the largest weekly decline in six years. Analysts believe that, under the influence of weakening rate cut expectations and liquidity tightening, gold, a traditional safe-haven asset, has not “shined” but instead shown signs of weakness.

On one hand, the conflict in the Middle East has driven up global energy prices, raising inflation expectations. Market expectations for major central banks to cut interest rates have decreased, reducing the attractiveness of holding gold.

Federal Reserve Chair Jerome Powell emphasized that it is still unknown how much the rise in oil prices will impact consumption, and the Fed has had to adopt a wait-and-see approach. Similarly, due to inflation concerns, the Bank of Canada, the European Central Bank, and the Bank of England have recently maintained interest rates unchanged and signaled that they will act swiftly to curb inflation pressures if necessary. The ECB issued a statement saying that the Middle East situation has made the economic outlook more uncertain, bringing both inflationary and economic slowdown risks.

Tightening monetary policies by multiple central banks will support the US dollar and suppress investment demand for precious metals like gold and silver. During global geopolitical turmoil, dollar assets tend to be highly sought after by the market. However, the dollar’s movement only partly explains the current decline in gold prices. The US dollar index against six major currencies did not surge throughout, ending at 99.641 on March 20, only slightly up from 97.608 on February 27, a modest increase of 2%.

On the other hand, gold has failed to live up to its safe-haven expectations, which is also related to a common issue among investors flocking into popular trades. The Wall Street Journal pointed out that gold trading was extremely high over the past year, and due to cautious risk aversion or debt repayment needs, selling gold has been the most direct choice for the market after the outbreak of war.

Despite many unfavorable factors in the short term, many market analysts remain optimistic about gold’s long-term prospects.

Rich Cekan, President and COO of U.S. International Asset Strategies, stated that the fundamentals of gold and silver prices have not changed in the past month, and the gold market will rebound from this excessive correction.

Adrian Day, President of Adrian Day Asset Management, also believes that the reasons investors have been buying gold over the past few years have not disappeared. The fundamental monetary and fiscal issues driving the gold bull market will continue to emerge after the war ends or the situation stabilizes. (End)