Gold is set to post its largest weekly decline in six years. Wall Street analysts warn: Don't rush to buy the dip!

Ask AI · What similarities are there between the current gold price crash and the Russia-Ukraine conflict in 2022?

Financial Associated Press (Editor Liu Rui) This week, as the ongoing war in the Middle East continues to push up energy prices and lower global central bank interest rate cut expectations, gold prices are expected to record the largest single-week decline in the past six years.

Multiple Wall Street analysts have warned that gold is still experiencing significant volatility and may face more selling in the short term, advising investors not to rush in to bottom-fish.

Gold is likely to record the largest single-week decline in six years

As of Friday, the gold price hovered around $4,700 per ounce, with a cumulative decline of nearly 8% this week - the largest drop since March 2020. Meanwhile, silver prices fell to around $72 per ounce, with a cumulative drop of about 10% this week. Palladium and platinum are also expected to see weekly declines.

Spot gold price trends over the past year

The surge in international crude oil, natural gas, and fuel prices triggered by the Iran war has raised widespread inflation concerns, reducing the likelihood of central banks lowering borrowing costs, which is bearish for gold.

Although gold has always been viewed as a safe-haven asset, it has experienced three consecutive weeks of decline since the US and Israel attacked Iran last month.

The key reason behind this is that as US Treasury yields and the dollar rise, investors are selling gold to offset losses in other areas. Rising Treasury yields increase the opportunity cost of holding gold, a non-yielding asset, thus putting pressure on gold. Additionally, gold-linked ETFs have also faced significant selling.

“Don’t blindly try to catch the bottom - the market is too volatile.” Robert Gottlieb, former precious metals trader at JPMorgan and now an independent market commentator, warned, “There may be more selling before volatility begins to decrease and gold prices start to stabilize.”

In fact, the performance of gold during this year’s Iran war is almost identical to that during the outbreak of the Russia-Ukraine conflict in 2022 - at that time, the conflict triggered an energy crisis that affected global markets.

Since the outbreak of the Russia-Ukraine conflict in February 2022, gold has experienced seven consecutive months of decline, setting the record for the longest decline on record.

Technically, further declines may continue

Yardeni Research analysts attribute the drop in gold prices to investors taking profits, rising US Treasury yields, and changes in investor positioning.

They believe that the current correction in gold may reflect investors locking in profits after the significant rise in gold prices over the past year. Currently, with the dollar strengthening during the Iran war, funds may be flowing from gold into the dollar.

The report also mentioned some technical factors, including gold prices have broken below the short-term uptrend line.

Yardeni Research stated that gold prices rose too quickly and too much earlier this year, and now that they have broken below the long-term trend channel, they may test support near $4,000 - which means a further decline of nearly 14% from the current price.

Analysts said: “Our original expectation was that, given the turbulent geopolitical situation, rising inflation, and increasing US government debt, gold prices should rise. But if gold prices continue to move against this expectation, we are considering lowering our year-end target price from the previously expected $6,000 to $5,000.”

(Financial Associated Press Liu Rui)