What's going on! In March, international gold prices plummeted by 17%, triggering an epic sell-off. Can prices still rise in the future? | Commodities Storm

This report (chinatimes.net.cn) reporter Ye Qing reports from Beijing.

Since March, COMEX gold prices have experienced a dramatic rollercoaster, with multiple rounds of steep declines, plummeting from historical highs in less than a month, erasing all gains for the year. Starting in mid-March, gold entered a downtrend, dropping from $5,000 per ounce, especially during the two trading days from March 18 to 19, where it fell over $400, breaking through several key levels. The cumulative decline for that week reached 11.26%, marking the largest single-week drop in nearly 43 years since 1983.

On March 23, gold prices saw another severe plunge, breaking through four key levels from $4,400 to $4,100 per ounce throughout the day before showing signs of a rebound. As of March 24 at 15:15, COMEX gold futures closed at $4,404 per ounce. Xi’an Jiaotong University guest professor Jing Chuan stated in an interview with the Huaxia Times that the recent international gold prices are under selling pressure from both technical and structural aspects, with the strengthening U.S. dollar index and rising U.S. Treasury yields reshaping global asset valuation anchors. The safe-haven appeal of gold has diminished in the face of high-yield U.S. dollar assets, leading funds to allocate towards cash in dollars or high-yield bonds, which, combined with the market’s negative feedback mechanism, further amplified the decline in gold prices.

Has the safe-haven property of precious metals failed?

Recently, international gold prices changed from a previous trend of continued increases to an epic crash, with a cumulative decline of 17% from March 2 to March 24. In this regard, Chuangyuan Futures analyst He Yi stated in an interview with the Huaxia Times that the recent sharp decline in international gold prices is mainly due to two factors. Firstly, the escalation of geopolitical conflict between the U.S. and Iran has driven up oil prices, impacting the global economy, leading to a significant simultaneous drop in global financial markets’ stocks and bonds, causing a short-term liquidity crunch. As a safe-haven asset, gold has been sold off due to short-term liquidity disturbances, facing the same fate as global stocks and bonds.

He Yi mentioned that some large international funds, during their asset allocation process, tend to allocate to stocks, bonds, and gold. When facing redemption pressure in the short term, especially during risk events where stocks and bonds drop in unison, these funds may close profitable gold positions to compensate for stock and bond losses and meet liquidity demands for client redemptions. When such funds operate collectively, it naturally triggers extreme selling.

With the recent decline in gold prices, some market participants have questioned whether gold’s safe-haven function has disappeared. In response, He Yi stated that gold’s safe-haven function has not vanished; he expects that once market liquidity stabilizes, gold will regain market favor. Additionally, after the recent surge in international crude oil prices, inflation rebound expectations have heated up. The Fed’s March meeting leaned hawkish, with rate hike expectations continuing to rise, raising concerns over a shift in the Fed’s monetary policy. From the performance of the capital markets, both U.S. stocks and bonds are currently facing selling pressure.

Furthermore, Jing Chuan noted that the market had previously priced in the Fed’s monetary easing cycle too fully, with funds concentrating on safe-haven assets like gold, thus pushing up gold prices. With the core PCE in the U.S. growing by 3.1% year-on-year in January, the certainty of inflation rising has increased, and market risk appetite has seen a phase of repair, leading funds to shift from defensive assets to equities and other high-yield assets, creating a phase of capital squeeze on gold prices.

Senior gold analyst Shen Jingcai stated in an interview with the Huaxia Times that the recent epic drop in gold prices is not due to a single factor, but rather the result of multiple factors resonating, including the Fed’s hawkish policy, rising U.S. dollar and Treasury yields, liquidity squeezes, slowed central bank gold purchases, and profit-taking at high levels. The absence of liquidity, the need to liquidate gold for liquidity, and the selling of U.S. Treasuries are all important aspects of this downturn, but not the only or fundamental reasons.

Goldman Sachs expects the ECB to raise rates in April

It is noteworthy that, aside from the impact of market liquidity on gold price fluctuations, monetary policies of central banks are changing. Due to the U.S.-Iran conflict, some investment banks predict that inflation in major global economies will rise by an average of 0.4 percentage points, and the continuously rising energy prices are likely to gradually influence the inflation expectations of various central banks. Although the likelihood of rate cuts in most Asian economies in the short term is low, tightening policy expectations may intensify over time.

Goldman Sachs released a research report stating that it now expects the European Central Bank to raise rates by 25 basis points in both April and June of 2026, having previously predicted that rates would remain unchanged in 2026. This adjustment aligns with predictions from JPMorgan and Barclays Bank, both of which also expect the ECB to take action in April. Goldman Sachs pointed out that the conflicts in the Middle East pose inflation risks, with rising energy prices being a major troubling factor.

On March 24, UBS downgraded the stock ratings for India and the Eurozone, warning that these stocks are highly sensitive to rising oil prices, and they will be more vulnerable if the Middle East conflict persists. UBS Asia equity strategist Suresh Tantiya stated, “It may be very difficult to reach a conclusive judgment on the U.S.-Iran conflict in the short term.”

In energy-importing markets (such as India and Europe), stock indices have fallen more than 9% since the outbreak of the U.S.-Iran conflict, more than twice the decline seen in the U.S. This reflects concerns that persistent rising energy prices may suppress economic growth, delay rate cuts, and increase fiscal pressures. This shift is reinforcing strategy adjustments among fund managers, who are reevaluating their investment portfolios towards more defensive and energy-resilient markets.

“In addition to changes in the ECB’s monetary policy, there has also been a key turning point in recent Fed monetary policy, with the rate cut cycle nearing its end. The policy focus has clearly shifted towards combating inflation, and rate hike options have returned to the discussion. From the policy changes at the Fed’s March 18 meeting, the Fed kept rates unchanged at 3.5% to 3.75% for the second consecutive time, aligning with market expectations,” He Yi stated.

At the same time, He Yi noted that compared to the January meeting, the statement removed the phrase about employment “stabilizing,” adding a focus on the uncertainty of the Middle East situation, reflecting that external shocks have become a core consideration.

When discussing inflation and the prospects for interest rate hikes, he stated that if inflation continues to rise, the possibility of rate hikes does exist, but it is not the baseline scenario at present.

“Powell acknowledged for the first time that the committee had discussed the possibility of rate hikes, but most members believe there is no need at this time. He emphasized that if there is no progress on inflation, there will be no rate cuts. The latest dot plot shows that the number of officials expecting no rate cuts in 2026 has increased from 4 to 7, significantly compressing the space for rate cuts. Overall, the Fed has shifted from a rate cut cycle to an observation period, even with a potential inclination towards rate hikes. If inflation continues to rise due to geopolitical conflicts, the Fed may maintain its tightening stance in May or June, and the risk of rate hikes will further increase,” He Yi stated.

However, Shen Jingcai stated that the core of the Fed’s current hawkish shift is that high rates will be maintained longer, and rate cuts will be significantly delayed, rather than resuming rate hikes. The threshold for rate hikes in May and June is extremely high, requiring inflation and employment to consistently exceed expectations, and leadership changes may also impact the policy path. Investors should closely track core PCE and Fed officials’ speeches to gauge the direction of policy. The Fed signaled a hawkish pause in March, raising inflation expectations and delaying rate cuts, with Powell’s strong statements reversing easing expectations. The Middle East has heightened oil prices, exacerbating inflation risks, and there are still divisions within the Fed, with policies highly dependent on data. Gold prices remain under pressure, and liquidity squeeze risks persist.

When will gold prices hit bottom?

As gold prices continue to fluctuate, the factors influencing them have also drawn external attention. In this regard, He Yi stated that in the short term, it is necessary to monitor the sustainability of the impact of rising oil prices on global stock and bond markets. If the geopolitical conflict in the Middle East continues to escalate and oil prices rise further, global stock and bond markets may continue to be impacted, and liquidity issues may continue to unfold, potentially suppressing gold prices in the short term.

Additionally, He Yi indicated that attention should also be paid to the direction of Fed monetary policy. If the Fed remains hawkish or shifts its monetary policy, this will jointly impact the global economy along with oil prices. In the medium to long term, the reshaping of the global monetary system, the restructuring of geopolitical patterns, and the driving of credit currency values by global debt cycles indicate that the medium to long-term bull market for gold has not yet ended.

However, Shen Jingcai stated that in the current macro environment, the core factors influencing gold price movements are undergoing subtle yet crucial shifts, and the U.S. dollar index has also entered a new phase of bullish and bearish contention. In the short term, gold prices are jointly dominated by Fed policy, dollar trends, and oil prices, with an overall bearish pattern unchanged. The dollar is likely to rise under hawkish guidance and risk aversion support, remaining the greatest suppressive force on gold prices. In the medium to long term, continuous attention should be paid to the resilience of the U.S. economy and the divergence of global central bank policies. As long as the dollar remains strong, gold prices will struggle to break free from the pressure.

Jefferies global economist Mohit Kumar stated in a report that the U.S.-Iran conflict may last longer than investors expect, possibly leading to further adjustments in the prices of risk assets, with concerns over stagflation/recession risks being higher than the current situation. Because investors initially expected the war to end quickly, many asset holdings have not been adjusted accordingly and may still need some adjustments.

Moreover, analysts at Saxo Bank noted that the ongoing war in the Middle East is causing widespread macroeconomic shocks in global markets, forcing investors to reassess inflation, interest rates, economic growth, and liquidity conditions simultaneously. Gold is being sold off because it is one of the few liquid assets that have still shown an upward trend over the past year. Gold is under pressure from concern that high energy prices will increase inflation and suppress expectations for further rate cuts in the near term.

Regarding the later trends of international gold prices, Shen Jingcai stated that the true bottom for international gold prices needs to meet three conditions: oil prices must peak, rate hike expectations must peak, and dollar liquidity must peak. Currently, none of these three conditions have been met. In the short term, international gold and silver prices are likely to be suppressed by the Fed’s hawkish policies and stagflation expectations, likely oscillating to find a bottom; it is advisable to stay on the sidelines for the short term and wait for clear stabilization signals from market sentiment and technical aspects before entering. Long-term investors can begin planning gradual allocations.

Editor: Shuai Kecong Chief Editor: Xia Shenchá