In March, international gold prices experienced a sharp decline, falling by 12% in a single month to close at $4,608 per ounce. This marked the weakest monthly performance for gold since June 2013.
Against a backdrop of escalating U.S.-Iran tensions and persistent inflationary pressures, gold—typically considered a safe-haven asset—unexpectedly saw significant selling. According to a recent report by the World Gold Council (WGC), this decline was not due to a breakdown in gold's fundamentals but was instead driven by a liquidity-induced deleveraging wave.
Under normal market conditions, geopolitical instability and inflation expectations tend to support gold prices. However, market behavior in March defied conventional logic. The WGC analysis suggests that traders sold gold not because they wanted to, but because they needed to raise cash quickly amid a broad-based sell-off across asset classes. As other assets, such as U.S. equities, faced margin calls or liquidity strains, investors liquidated their most liquid holdings—including gold—to cover positions.
The report emphasized that investors were “selling what they could, not what they wanted to.” Despite heightened risk aversion in the first three weeks of March, large-scale deleveraging and urgent liquidity needs disrupted the usual supply-demand balance.
From a capital flow perspective, global gold-backed exchange-traded funds (ETFs) saw outflows of approximately $12 billion (around 84 tonnes) during the month. However, the selling pressure varied significantly by region:
- In Europe and North America, outflows were most severe, with North America alone experiencing $14 billion in withdrawals. - In contrast, Asian markets recorded inflows of $1.9 billion (about 10 tonnes). The WGC noted strong bargain-hunting sentiment in Asia, which, while not enough to fully offset outflows from Western markets, signaled underlying investor confidence.
Technical factors also amplified the downturn. When gold prices fell below the 50- and 55-day moving averages in mid-March, many algorithm-driven commodity trading advisor (CTA) funds initiated large-scale sell-offs, adding further downward pressure.
Market speculation had suggested that Middle Eastern sovereign wealth funds might be selling gold reserves or that regional instability was influencing prices. The WGC refuted these claims. While the Central Bank of Turkey used roughly 50 tonnes of gold in swap transactions for liquidity management, this did not constitute strategic selling. Similarly, although tourism and jewelry demand in the Middle East declined due to conflict—leading to higher trading volumes in Dubai—this only affected local premiums and did not impact international pricing. There was no evidence that oil-producing nations were liquidating gold reserves to hedge against currency depreciation.
Despite near-term risks, the WGC remains optimistic about gold’s medium- to long-term outlook. As prices stabilize above key technical levels, wealth management firms and physical buyers have begun re-entering the market. Moreover, if energy-driven inflation leads to weaker economic demand, the Federal Reserve may eventually adopt a more dovish monetary stance, which would be supportive for gold over time.
The WGC did issue a caution, however: if oil prices remain above $100 per barrel due to prolonged conflict, a new round of cross-asset deleveraging and rising yields could occur. In such an extreme scenario, gold may still face short-term selling pressure as investors again turn to it as a source of quick liquidity.
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