Gold Rebounds After Nine Consecutive Declines: Will Geopolitical or Policy Factors Dominate?

Source: Huizhong.com

Huizhong Finance APP News — On Wednesday, March 25, spot gold prices quickly rebounded from recent lows, returning above $4,500 per ounce and ending a nine-day losing streak. The US dollar index hovers around 99.3 and shows signs of weakening, while oil prices also fell back to around $88 per barrel. Meanwhile, diplomatic progress around the Strait of Hormuz in the Middle East has eased tensions, collectively helping gold break free from short-term correction pressures. However, Federal Reserve policy expectations, geopolitical risk premium fluctuations, and potential reserve adjustments by some central banks will still determine the sustainability of future gold price movements.

Immediate Drivers of the Gold Rally

The core logic behind this rebound in spot gold is the resonance of multiple positive factors. A weaker dollar directly reduces the holding costs of non-yielding assets. Recent analysis from ING indicates that gold prices continued to rise on the second day mainly due to the dollar index’s pullback and falling oil prices, supported further by diplomatic signals that eased concerns over energy transportation disruptions. Traders have observed that the correlation between gold and the dollar has recently remained around -0.7; once the dollar index drops below 99, gold tends to accelerate higher.

The decline in oil prices also plays a significant role. Lower energy prices ease some inflation expectations but do not eliminate geopolitical risk premiums, providing additional support for gold’s safe-haven appeal. In the short term, gold’s reversal from a nine-day decline reflects the market’s quick pricing of risk events.

The Middle East situation remains a key variable influencing gold prices. Although diplomatic gestures around the Strait of Hormuz have been positive and the US has signaled favorable energy flow prospects, actions targeting Iranian assets by Israel continue, and the US’s additional troop deployments highlight ongoing regional tensions. Geopolitical risk premiums are not rising linearly but depend on the pace of event development and market risk appetite shifts.

Linkage Between the US Dollar and Oil Prices

The recent weakness of the US dollar index has directly supported gold. Currently around 99.3, the dollar has fallen significantly from early-month highs, closely related to the market’s reassessment of Fed rate cut expectations. As gold is dollar-denominated, its price has a high negative correlation with the dollar exchange rate. When the dollar weakens, holders of other currencies worldwide are more inclined to buy gold. Traders monitor the intra-day volatility comparison between the dollar and gold; if dollar volatility narrows while gold remains strong, the likelihood of continued rebound increases.

Oil price declines also influence gold through inflation expectations. Lower energy costs ease global inflation pressures, but geopolitical factors still cause oil price volatility. Traders watch Brent-WTI spreads; widening spreads may signal reassessment of transportation risks.

Impact of Monetary Policy Expectations and Central Bank Actions

The Federal Reserve’s policy path remains the biggest uncertainty for gold. Currently, the federal funds rate is maintained between 3.5% and 3.75%, with market expectations of only one rate cut in 2026, implying that real yields will stay relatively high and exert some downward pressure on gold. Traders focus on the latest statements from Fed officials; if hawkish signals strengthen, gold’s rebound potential may be limited. Conversely, if data supports a more dovish stance, further dollar weakness could amplify gold’s upside.

Additionally, some central banks’ responses to rising energy import costs warrant attention. The Central Bank of Turkey has shown a tendency to stabilize the lira by adjusting gold reserves. If such actions expand, they could increase market gold supply and exert structural bearish pressure. ING warns that although central bank gold sales are usually isolated cases, a chain reaction could create a structural drag on gold prices. Traders need to balance geopolitical positives against policy negatives and monitor global central bank net gold purchase data monthly to assess long-term trends.

FAQs

Q1: Why did spot gold end its nine-day decline and rebound above $4,500 per ounce?

A: The main drivers are the weakening of the dollar index from recent highs to around 99.3, oil prices falling to about $88 per barrel, and diplomatic signals around the Strait of Hormuz. A weaker dollar reduces gold holding costs, falling oil prices ease inflation pressures but keep risk premiums, and diplomatic progress lowers fears of transportation disruptions. The combination of these factors creates a short-term positive feedback loop.

Q2: What role does geopolitical risk play in current gold pricing?

A: Geopolitical risk remains a dominant factor. Although there are signs of easing tensions, ongoing troop deployments and asset actions in the region keep risk premiums supported. Traders need to distinguish between event-driven volatility and long-term trend changes.

Q3: What does central bank potential use of gold reserves imply for the market?

A: Actions by institutions like Turkey’s central bank to adjust reserves due to energy costs could increase gold supply, creating a structural bearish effect. Traders should watch for signs of global central banks shifting from net gold purchases to net sales, which would weaken long-term support for gold. Combined with Fed policy expectations, such actions could amplify gold price volatility.