Gold prices fluctuate sharply with near-term pressure; does the long-term upward logic still hold?

Recently, gold prices have experienced significant fluctuations, attracting market attention.

From the international gold market, as of the close on March 21 Beijing time, COMEX gold prices fell below the $4,500 per ounce mark, closing at $4,492 per ounce, a daily decline of 2.47%, with a weekly drop of over 10%. Domestic gold prices also declined simultaneously. As of the close on March 20, the main contract of Shanghai gold futures was quoted at 1,016.12 yuan per gram, down 1.22%.

Affected by the decline in gold prices, domestic jewelry brands generally lowered their gold jewelry prices. On March 22, brands such as Chow Tai Fook, Chow Sang Sang, and Luk Fook Jewelry all reduced their gold jewelry prices to below 1,400 yuan per gram.

In response to this round of gold price declines, Xiao Ming Yu, senior investment advisor at Shaanxi Jufeng Investment Information Co., Ltd., told Securities Daily that the main reason is the Federal Reserve’s strong hawkish signals, which significantly cooled market expectations for rate cuts. The strengthening of the dollar and U.S. Treasury yields has also put pressure on non-yielding gold.

On March 19 Beijing time, the Federal Reserve announced that the target range for the federal funds rate would remain unchanged at 3.5% to 3.75%. This is the second consecutive time this year that the Fed has kept interest rates steady.

Lou Feipeng, a researcher at China Postal Savings Bank, believes that besides the hawkish signals from the Federal Reserve, geopolitical conflicts pushing up oil prices and increasing inflation concerns have led safe-haven funds to shift into the dollar and crude oil, reducing demand for gold investments. Additionally, profit-taking from previous high positions and multiple negative factors have contributed to the decline in gold prices.

“In the short term, gold prices are likely to fluctuate under pressure. In the medium term, if the Federal Reserve begins to cut rates, with real interest rates falling, combined with central bank gold purchases and ongoing geopolitical risks, gold prices are expected to resume an upward trend,” Lou Feipeng said when discussing the future outlook for gold prices. From a long-term perspective, influenced by supply and demand gaps and other factors, gold prices are likely to continue rising.

Qu Rui, senior deputy director of the Research and Development Department at Orient Securities, believes that future gold prices will show a “short-term pressure, medium- and long-term improvement” trend. In the short term, high oil prices will keep the Federal Reserve’s high interest rate stance longer and strengthen the dollar, continuing to suppress gold prices. In the medium to long term, as the effect of rising oil prices diminishes and inflation gradually recedes, although the Fed’s rate cut cycle may be delayed, it will not be absent. Coupled with stable central bank gold purchases and weakening dollar credit, gold prices are expected to fluctuate and rebound.

“Investors are advised to stay on the sidelines in the short term to avoid bottom-fishing risks and wait for support levels to be confirmed. In the medium to long term, focus should be on the Fed’s rate cut window and geopolitical developments as key catalysts,” Qu Rui said.