Gold prices edged up roughly 1.5% during early Asian trading on Monday, July 27, briefly surpassing the $4,100 per ounce mark to reach a high of $4,115.89. However, short-term downside risks are becoming more apparent, with the price now slightly retreating to around $4,095, narrowing the gain to 1%. Russ Koesterich, a portfolio manager for BlackRock's Global Allocation strategy, noted that the decline from January's all-time high has been significant, driven by a combination of a stronger US dollar, rising real interest rates, and capital concentration in AI-related stocks. After the strong rally earlier this year, gold's safe-haven properties have weakened, and it no longer serves as an effective hedge against portfolio risk. He emphasized that the underlying structural factors—high global debt, chronic risks of currency debasement, and persistent geopolitical tensions—remain unchanged, recommending that investment portfolios maintain a moderate allocation to gold.
Sharp Correction After Bull Run, Changing Gold's Role
Gold experienced a powerful rally at the start of the year, hitting record highs, but has since consistently weakened. From its January peak, the price has fallen by approximately 25%, with a year-to-date loss of 7%. Koesterich highlighted a key observation: this strong initial uptrend has altered gold's function within a portfolio. Amplified by the robust trend, gold has ceased to be a traditional safe-haven asset. Historically used to buffer against market downturns, during this bull run, gold's own volatility has increased. Instead of hedging against portfolio drawdowns, it has actually added to overall portfolio risk. The fading of this trend momentum is one trigger for the months-long correction, but it is merely a secondary factor.
Three Core Headwinds Suppressing Gold Prices
First, a stronger US dollar. The primary driver of gold's current decline is the dollar's resurgence. While markets often discuss currency debasement trades, the US Dollar Index has rebounded over 6% from its January lows. Concerns over a global energy shock, better-than-expected US stock market performance, and shifting expectations for Federal Reserve policy have all supported the dollar's strength. Second, rising real interest rates. Alongside the dollar's rise, long-term interest rates have also climbed, making real yields a significant headwind for gold. The 10-year TIPS real yield has increased from 1.65% in early March to 2.20%. As a non-yielding asset, higher real interest rates significantly raise the opportunity cost of holding gold. Third, capital is highly concentrated in the AI sector, leaving gold underappreciated. Current market capital is clearly concentrated in a handful of leading AI companies with impressive earnings growth. Gold, which cannot generate cash flow or earnings, is being treated as a low-growth, stable asset and has been temporarily overlooked by the market. In an environment where risk appetite is focused on high-growth technology stocks, gold struggles to attract incremental buying.
Core View: Short-Term Headwinds Don't Change Long-Term Allocation Value
Despite the convergence of bearish factors, the BlackRock manager still sees value in gold's long-term allocation. The structural logic supporting gold remains intact: global government debt and fiscal deficits are at historic highs, creating persistent risks of long-term currency debasement; geopolitical conflicts have not subsided, they have simply not yet fully triggered safe-haven buying for gold. He argues that one should not liquidate gold holdings based on a period of adjustment alone. Within a diversified portfolio framework, a moderate gold position should be maintained to hedge against various tail risks in the future.
Summary
In summary, gold's short-term pressure results from the combined effect of a stronger US dollar, rising real interest rates, and capital chasing AI growth stocks. Following the sharp rally at the start of the year, gold's safe-haven function has temporarily diminished, and the correction continues. However, over the medium to long term, the foundational logic supporting gold, including high debt, currency debasement, and geopolitical risks, has not disappeared. The institutional view is that there is no need to exit completely; a moderate gold position should be maintained. In the short term, the focus should be on tracking the dollar's movement and changes in US Treasury real yields, as these two key variables will dominate gold's price range.
Spot Gold Daily Chart Source: EasyForex
Time: 11:03 Beijing Time, July 27
Spot Gold Price: $4,093.90 per ounce
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