On Monday, March 16, the price of international gold stabilized after an intraday decline of nearly 1%, briefly falling below the critical $5,000 threshold. A weaker U.S. dollar and persistent safe-haven demand partially offset diminished expectations for near-term U.S. interest rate cuts, which have been influenced by elevated energy prices.
At the time of writing, spot gold was down 0.72% at $4,984, recovering from an earlier slide that saw it touch its lowest level in over three weeks. Concurrently, a slight dip in the U.S. dollar made dollar-denominated commodities like gold less expensive for investors holding other currencies.
A retreat in the yield of the 10-year U.S. Treasury note enhanced the appeal of non-yielding assets such as gold.
U.S. President Donald Trump stated on Sunday that his administration is in discussions with seven nations about assisting in securing the Strait of Hormuz. President Trump also threatened further strikes on Iran's primary oil export hub, Kharg Island, and indicated he is not yet prepared to agree to a deal to end the conflict.
Christopher Wong, a strategist at OCBC Bank, commented, "Gold prices are generally stable as the market weighs multiple macroeconomic forces. Safe-haven demand stemming from ongoing geopolitical tensions continues to provide support, but rising oil prices are also reigniting inflation concerns."
As the conflict involving the U.S., Israel, and Iran entered its third week, oil prices remained above $100 per barrel. Risks to petroleum infrastructure and the continued closure of the Strait of Hormuz constitute one of the most severe disruptions to global supply on record.
Rising crude oil prices transmit to inflation by increasing transportation and production costs. While gold is traditionally viewed as a hedge against inflation, higher interest rates can enhance the attractiveness of yield-bearing assets, thereby diminishing gold's appeal.
Wong added, "In the short term, price action is likely to remain volatile as the market reassesses the Federal Reserve's policy path and the movement of real yields."
The upcoming Federal Reserve policy decision is highly anticipated. Markets widely expect the Fed to hold interest rates steady for a second consecutive meeting on Wednesday. However, close attention will be paid to remarks from Fed Chair Jerome Powell for clues regarding the future direction of monetary policy.
The international oil benchmark, Brent crude, holding above $100 per barrel, is further fueling inflation worries and dampening hopes for subsequent interest rate cuts.
Whether spot gold can maintain its position above $5,000 is likely to be a key determinant of its near-term trajectory. Dilin Wu, a strategist at Pepperstone, noted in a report that a decisive break below the $5,000 level could see prices fall further towards a support range between $4,850 and $4,900. Conversely, if gold stabilizes, the next resistance levels to watch would be $5,100 and $5,250.
Wu pointed out that a stronger U.S. dollar and the unwinding of leveraged long positions could continue to pressure gold prices, while buying from institutional investors and central banks provides underlying support. He also suggested that an escalation in geopolitical tensions or hawkish signals from the Fed could trigger increased volatility.
Analysis indicates that gold's breach of the $5,000 level reflects a shift in short-term market sentiment following months of sustained strong gains, signaling that the macroeconomic environment is reassessing the pricing of precious metals.
From a market structure perspective, the rapid price increase in precious metals was previously driven by factors including safe-haven demand, moderating inflation expectations, and buying signals triggered by continued accumulation by central banks and institutions. However, the fact that gold and silver prices fell rather than rose following the outbreak of conflict in the Middle East suggests that significant short-term speculative capital began taking concentrated profits, prompting a technical correction. Silver, in particular, due to its relatively smaller market size, often exhibits greater price volatility during periods of capital outflow.
Furthermore, changes in macroeconomic expectations have also exerted pressure on precious metals. The impact of Iran's control over the Strait of Hormuz has led markets to anticipate tighter energy supplies, driving up energy prices and contributing to a global spike in oil prices. This, in turn, has raised global inflation expectations, potentially forcing central banks to maintain a cautious stance on interest rate adjustments.
From a long-term perspective, the current correction does not necessarily signal the end of the bull market for precious metals. Historically, precious metals often undergo several significant adjustments during major upward cycles. Fundamentally, the core drivers supporting precious metals remain intact; against a backdrop of global economic uncertainty, geopolitical risks, and monetary system instability, gold and silver retain their long-term value as portfolio assets.
In recent years, the persistent accumulation of gold by central banks worldwide has become a significant trend, providing a degree of long-term market support. Unlike gold, which is primarily driven by its financial attributes, silver also possesses significant industrial characteristics.
Growth in industries such as renewable energy, photovoltaics, and electronics has driven sustained increases in industrial demand for silver. Consequently, during periods of economic improvement, silver often receives additional support from its industrial demand.
However, the logic of configuring silver as a safe-haven asset has not yet been widely accepted by the market. Due to its higher volatility, silver is more readily categorized as a high-volatility risk asset; simultaneously, its deep involvement by speculative capital can cause its price movements to decouple from those of traditional safe havens under certain conditions.
From a macroeconomic standpoint, the current bull market in precious metals still rests on a relatively solid fundamental base, given the high level of global uncertainty and rising inflation expectations. Short-term adjustments help flush out some short-term speculative capital, thereby potentially reducing the volatility of these safe-haven assets.
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