Gold prices have been under sustained pressure recently, with market trends showing signs of further weakness. Spot gold has fallen more than 3% since the start of the year, turning its year-to-date return negative.
On Tuesday local time, the United States launched a new round of strikes against Iran in retaliation for the latter shooting down a military helicopter, a move that jeopardizes all efforts to end the conflict. During Wednesday's Asian trading session, gold selling intensified, with spot gold down approximately 2% on the day at the time of writing, falling below the $4,200 per ounce mark.
From a technical perspective, after prices broke below the key support level of the 200-day moving average last Friday, the cumulative decline has exceeded 5%. Although the current price remains above the March low, the overall performance shows clear bearish signals.
Standard Chartered's Global Head of Commodities Research, Suki Cooper, pointed out in a recent precious metals report that redemption pressure on gold Exchange-Traded Products (ETPs) could intensify further. She stated:
"We expect recent price action to become more vulnerable in the face of macro headwinds. Gold has started to take cues from real yields again."
In her view, investment demand from sources like ETFs is more closely linked to real yields, rather than being driven by structural factors in the physical market. As inflation rises, market expectations for a Federal Reserve rate hike this year have increased, pushing real yields higher. This, in turn, raises the opportunity cost of holding non-interest-bearing assets like gold.
Fund flows already reflect this shift. Cooper noted that although tactical positioning turned net long in May, ETP holdings decreased by 16 tonnes that month, a trend that continued into June.
Looking at the holding structure, risks are gradually accumulating around the current price range. Cooper highlighted that around the recent low near $4,250 per ounce, at least 270 tonnes of ETP holdings are in a loss-making position.
Risks would continue to amplify in a scenario of further price declines. She indicated that if the gold price falls to $4,000 per ounce, the amount of holdings in a loss position would increase to 298 tonnes. Using a first-in, first-out calculation method and assuming this year's net redemptions occur at lower price levels and affect profitable positions, this potential loss scale could expand to 465 tonnes.
Overall, the current ETP holding structure appears fragile and could amplify downward price pressure. The next significant technical support level is broadly around $4,100 per ounce.
Beyond interest rate factors, the currency environment is also exerting downward pressure on gold. Cooper pointed out that the recent resurgent uptrend in the US dollar is similarly unfavorable for gold.
However, she also emphasized that despite facing multiple short-term pressures, gold prices still have room for recovery from a medium-term perspective.
It is worth noting that analysts from Citigroup stated in a report released on Monday that if the Strait of Hormuz remains closed before the end of summer, gold prices could potentially fall to $3,500 per ounce, a decline of approximately 19% from Tuesday's levels.
The analysts stated that this implies the asset, often seen as the ultimate safe haven during market turmoil, appears "extremely risky" in the short term. Citigroup has lowered its three-month gold price target from $4,300 per ounce to $4,000.
Comments