After a deep dip in gold prices in March, they rebounded. How much is the investment value affected by the sharp rise and fall?

Ask AI · Why can geopolitical conflicts instantly reverse gold market sentiment?

In March, gold prices experienced a deep correction, with international spot gold (London Gold) prices falling more than 11% for the month, marking the worst monthly performance since October 2008. The New York gold futures prices also “plunged,” with the main contract dropping nearly 11% in March, the first monthly decline in nine months, and the largest single-month drop since June 2013.

Faced with the sharp volatility in gold prices, many investors’ attitudes toward gold have also begun to fluctuate, shifting from “全民抢金” (everyone rushing to buy gold) to “持续观望” (continued observation) within just a few months. Looking ahead to the second quarter, how to allocate assets in gold remains a topic of concern for investors.

Geopolitical conflicts become the main catalyst for short-term gold price fluctuations

Since March, international gold prices have fluctuated significantly, mainly due to the switch in trading logic triggered by geopolitical conflicts and the rapid reversal of market sentiment. The current geopolitical situation has become the market’s core focus and is the primary catalyst for short-term gold price volatility.

The impact of geopolitical conflicts on the global economy is significant, forcing investors to reprice global inflation, interest rates, economic growth, and liquidity conditions simultaneously. The concentrated release of short-term negative factors has also triggered traders to take profits on gold at high prices, further increasing selling pressure.

As conflicts in the Middle East continue, market trading logic has shifted toward “global inflation rebounding” and “high oil prices dragging down the global economy.” Rising oil prices will lead to increased costs across industries, which will be transmitted along the supply chain, causing a slowdown in global economic growth.

As of the close on March 31, the price of West Texas Intermediate (WTI) crude oil futures for delivery in May on the New York Mercantile Exchange and the Brent crude oil futures for May delivery in London both closed above $100 per barrel. For the full month of March, the main contract price of New York crude oil futures increased by over 51%, and Brent crude oil futures surged by over 60%, the largest monthly increase since 1988.

The surge in oil prices is also weakening market expectations that global central banks will continue to implement loose monetary policies, which has been one of the key factors driving gold prices higher. If global central banks are forced to shift to a rate hike cycle, it will further suppress gold prices.

Huatai Futures’ research report from the New Energy and Nonferrous Metals Group pointed out that, looking at the history of gold spot trading, gold price movements are not always driven by safe-haven sentiment. Under specific macroeconomic backgrounds, monetary policy shifts, and liquidity crises, gold has experienced several deep and prolonged declines, even long bear markets.

After the escalation of conflicts in the Middle East, some central banks began to sell gold. As one of the major global gold holders over the past decade, Turkey’s central bank has been conducting large-scale gold sales for two consecutive weeks to cope with liquidity pressures. Data shows that Turkey’s central bank sold nearly 60 tons of gold in two weeks in March. Additionally, the Polish central bank has also announced plans to sell its gold reserves.

Overall, the tightening of cross-border liquidity caused by the Middle East conflicts has impacted the global gold reserve landscape. In the short term, the trend of gold accumulation by global central banks may significantly slow down, and some central banks facing both exchange rate and inflation pressures may continue to reduce their gold holdings.

However, since late March, market sentiment has gradually stabilized, and gold prices have rebounded. As of the close on March 31, the international spot gold (London Gold) price had risen back to $4,670 per ounce, reaching a new high since March 20. Gold futures for June delivery on the New York Mercantile Exchange also rebounded to $4,679 per ounce.

Gold remains in a highly sensitive re-pricing stage

Amid the complex interplay of bullish and bearish factors, international gold prices are still in a highly sensitive re-pricing phase, and short-term gold prices may continue to fluctuate.

Xia Yingying, head of the Precious Metals and New Energy Research Group at Nanhua Futures, told Beijing News Shell Finance that looking into the second quarter, the evolution of Middle East tensions, Federal Reserve policies, and supply-demand fundamentals will jointly determine the rhythm of the gold market. However, the impact driven by geopolitical events is expected to gradually weaken, and prices may revert to being primarily driven by monetary policy adjustments and fundamentals.

Xia Yingying predicts that in the second quarter, gold prices will fluctuate and bottom out, gradually recovering from earlier declines, with the short-term correction not changing the overall upward trend. However, more evidence supporting a rise in Fed rate cuts or accelerated central bank gold purchases is needed, which may occur in the latter half of the second quarter or in the third quarter. Key support levels for gold in the second quarter are between $4,100 and $4,400 per ounce, with resistance at $5,000 per ounce. Caution is advised regarding the risk of further liquidity and gold price declines if Middle East tensions worsen, with close attention to signals of easing tensions, Fed movements, and oil price impacts on inflation.

Wang Weimang, an investment manager at Zhonghui Futures Asset Management, believes that from a short-term perspective of 1-3 months, the residual effects of liquidity shocks and interest rate expectations will lead to wide-ranging fluctuations, with $4,300 per ounce (970 yuan per gram for Shanghai Gold) as a key support level.

Beijing News Shell Finance reporter Zhang Xiaochong, editor Chen Li, proofreader Wang Xin