Gold poised for its biggest weekly drop in six years; Wall Street analysts warn: Don't rush to buy the dip!

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Source: Cailian Press

This week, as the Middle East conflict continues to push energy prices higher and reduce expectations for global central banks to cut interest rates, gold prices are expected to record their largest weekly decline in the past six years.

Several Wall Street analysts warn that gold remains highly volatile, with more selling likely in the short term. Investors are advised not to rush into bottom-fishing.

Gold Set for Largest Weekly Drop in Six Years

As of this Friday’s report, gold prices hovered around $4,700 per ounce, with a weekly decline of nearly 8%—the biggest since March 2020. Meanwhile, silver prices fell to about $72 per ounce, with a weekly drop of approximately 10%. Palladium and platinum are also expected to decline for the week.

Spot Gold Performance Over the Past Year

The surge in international crude oil, natural gas, and fuel prices triggered by the Iran conflict has sparked widespread inflation concerns, reducing the likelihood of rate cuts by central banks worldwide, which is bearish for gold.

Although gold has traditionally been seen as a safe-haven asset, it has experienced three consecutive weeks of decline since the U.S. and Israel attacked Iran last month.

A key reason behind this is the rise in U.S. Treasury yields and the dollar, prompting investors to sell gold to offset losses elsewhere. Rising U.S. bond yields increase the opportunity cost of holding non-yielding assets like gold, putting downward pressure on prices. Additionally, ETFs linked to gold have also seen heavy selling.

“Don’t blindly buy the dip—market volatility is too high,” warned Robert Gottlieb, a former Morgan Stanley precious metals trader and now an independent market commentator. “There may be more selling before volatility subsides and gold prices stabilize.”

In fact, this year’s performance of gold during the Iran conflict closely mirrors that during the Russia-Ukraine crisis in 2022—when the conflict triggered an energy crisis that affected global markets.

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

Technical Outlook: Further Decline Possible

Yardeni Research analysts attribute the drop in gold prices to profit-taking by investors, rising U.S. bond yields, and changes in investor positioning.

They believe this correction may reflect investors locking in gains after a significant rally over the past year. Currently, with the dollar strengthening amid the Iran conflict, funds may be flowing from gold into the dollar.

The report also mentions technical factors, including gold prices breaking below a short-term upward trendline.

Yardeni Research states that gold prices, which surged too rapidly earlier this year, may now test support levels near $4,000 after breaking below the long-term trend channel—implying a potential further decline of nearly 14% from current levels.

Analysts say, “Our initial expectation was that gold would rise amid geopolitical turmoil, rising inflation, and increasing U.S. government debt. But if gold continues to move contrary to this outlook, we are considering lowering our year-end target from the previously expected $6,000 to $5,000.”

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Editor: Zhu Hennan