In early Asian trading on May 18th, spot gold fell below the $4,500 per ounce mark, marking its first dip below this level since late March, with an intraday decline of 0.85%.
On the news front, according to reports, Israeli Prime Minister Benjamin Netanyahu and former U.S. President Donald Trump held a phone conversation on the evening of May 17th local time, discussing the possibility of resuming military action against Iran. Israeli Public Broadcasting Corporation cited a senior Israeli official stating the call lasted approximately half an hour, primarily focusing on the potential for renewed military strikes against Iran. The official noted that if the U.S. resumes military operations against Iran, a joint aerial campaign between the two nations is anticipated.
Addressing the question of why gold prices are falling despite escalating U.S.-Iran tensions, Wang Yanqing, Chief Precious Metals Analyst at CSC Futures, explained that the primary driver behind the current gold price decline is liquidity tightening. The escalation of U.S.-Iran tensions has triggered a global sell-off across assets, with both equities and bonds experiencing significant declines. Under such conditions, gold has also been impacted. Similar scenarios occurred during the 2008 financial crisis and the 2020 COVID-19 pandemic, where gold prices fell following a sudden tightening of liquidity.
Wang Yanqing acknowledged that market expectations for Federal Reserve interest rate cuts have significantly weakened due to inflation concerns, diminishing short-term support for gold prices. However, from a long-term perspective, factors such as central bank gold purchases and the weakening credibility of the U.S. dollar persist and are expected to continue supporting gold. Currently, liquidity risk is the main factor driving market volatility. If the global asset sell-off subsides, gold may also stabilize. Short-term investors are advised to adopt a wait-and-see approach. Considering gold's medium to long-term upward potential remains intact, allocations could be considered once market conditions stabilize.
Shortly before, on May 13th, a significant development emerged regarding another key factor influencing gold's medium to long-term trajectory. On that day, the U.S. Senate confirmed Kevin Warsh as the 17th Chair of the Federal Reserve with a vote of 54 in favor and 45 against, for a four-year term. During his nomination hearing on April 21st, Kevin Warsh clearly outlined three core positions:
First, he advocates for "institutional change," criticizing the Fed's policies over recent years and proposing the establishment of a new inflation framework, updated policy tools, and optimized external communication methods.
Second, he emphasizes the independence of monetary policy, explicitly stating he "would never be a puppet of the president," while noting that former President Trump never requested any specific commitment regarding interest rate decisions.
Third, he establishes a policy logic of "tightening to create space for easing," supporting balance sheet reduction to create operational room for future rate cuts, while acknowledging the possibility of long-term rate cuts driven by technological advancements.
Lian Ping, Chairman of the China Chief Economists Forum and Dean of the International Finance Research Institute, believes that with the Federal Reserve entering the "Warsh era," global asset prices may undergo a systemic repricing. The Fed's balance sheet reduction, which withdraws global U.S. dollar liquidity, is expected to push up real interest rates and financing costs, creating阶段性 pressure on U.S. growth stocks, high-valuation tech sectors, and global risk assets, while credit bond spreads are likely to widen further. Although potential rate cuts could mitigate economic downturn expectations and support some value and defensive sectors, they may not fully offset the pressure from liquidity tightening.
Lian Ping anticipates a divergent performance among commodities. A阶段性 stronger U.S. dollar combined with weak demand expectations may suppress原油 and industrial metals, while geopolitical tensions and monetary system uncertainties could support safe-haven assets like gold. As rate cuts materialize and AI-driven productivity improvements take hold, capital may flow back towards emerging market core assets with improving fundamentals and valuation advantages, particularly Renminbi-denominated assets.
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