Recent sharp declines in gold prices have reignited doubts about its status as a safe-haven asset, but Standard Chartered maintains that the downturn does not alter the long-term bullish case for gold.
In a recent column, Suki Cooper, Global Head of Commodities Research at Standard Chartered, noted that short-term pressure on gold stems from surging liquidity needs and diminished expectations for Federal Reserve rate cuts, rather than a fundamental erosion of gold's safe-haven appeal. She projected that gold prices would resume their upward trajectory in the coming months and challenge previous record highs.
Since the onset of Middle East conflicts, gold has fallen approximately 12%, a trend that contradicts conventional views of gold as a "safe harbor."
Cooper indicated that gold has rapidly shifted from an overbought condition in January to an oversold state, suggesting room for a technical rebound. Moreover, gold has not yet fully priced in recession risks or stagflation concerns, while multiple structural support factors remain intact, providing a foundation for future recovery.
Liquidity pressures are currently dictating short-term movements. Historical patterns indicate that such adjustments are typically limited. Cooper explained that during market turmoil, investors often rotate between assets; falling stock prices trigger margin calls, and gold is one of the few assets that can be sold without incurring losses to meet liquidity needs. This mechanism accounts for gold's atypical decline in the initial phase of a crisis.
Historically, liquidity-driven selling pressure on gold tends to last four to six weeks after a crisis event. Once liquidity strains ease, investors rebuild their gold positions. If a crisis persists, the recovery period lengthens—for instance, during the global financial crisis, it took over four months for gold to reclaim its losses.
The magnitude of the recent decline exceeds typical reactions to past Middle East conflicts, partly because gold had just hit a record high in January. Cooper pointed out that gold prices peaked in January, with gold-backed exchange-traded products (ETPs) also reaching new highs amid strong investor demand, making gold a prime candidate for selling during market stress.
Technically, the deviation of spot gold prices above the 50-day moving average in January was the largest since 1999. Following the conflict, spot gold fell below the 50-day average, with the deviation becoming the most negative since 2013. This indicates a rapid shift from extreme overbought to oversold conditions within months.
Weakening expectations for interest rate cuts, combined with ETP outflows, continue to exert near-term pressure. Cooper stated that gold's short-term movements are once again closely tied to U.S. rate expectations and policy uncertainty. Historically, rising rate expectations tend to suppress gold prices because gold offers no yield, and higher rates increase its opportunity cost. This relationship, which had decoupled in late 2022 due to massive central bank gold buying, has recently reasserted itself as market expectations for Fed rate cuts this year have faded.
ETP flows are another key indicator. Cooper noted that ETP investors are more sensitive to real yield expectations than to structural drivers. Net ETP redemptions in March are on track to be the largest monthly outflow since September 2022, indicating a shift from structurally or safety-driven demand to short-term sentiment-led trading. However, the pace of ETP outflows has begun to slow, suggesting that excessively crowded long positions may have largely been unwound.
At the central bank level, markets are closely watching whether institutions will sell gold accumulated in recent years. Data shows that net central bank gold purchases declined from over 1,000 tonnes to 863 tonnes last year, but the dollar value of purchases still hit a record high.
Despite near-term headwinds, Cooper believes the case for higher gold prices remains strong. She emphasized that current prices do not reflect recession risks—historical data shows gold has risen an average of 15% during recessions, while more industrially-oriented commodities often suffer from reduced output.
Additionally, gold has not fully priced in stagflation concerns. Even if Middle East conflicts were to end immediately, oil prices would likely remain elevated for an extended period, boosting inflation expectations. As a store of value, gold typically performs well in environments of unexpectedly high and persistent inflation.
From a broader perspective, several structural drivers remain supportive, including concerns over high U.S. and global debt, pressures from fiat currency depreciation, uncertainties around tariffs and trade policies, and ongoing geopolitical risks.
Technically, Cooper highlighted that gold's 200-day moving average has not been decisively breached since October 2023, serving as a key support level. She concluded that while the short-term path for gold may be volatile and liquidity pressures could persist, prices are expected to regain upward momentum in the coming months.
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