COMEX gold prices fell sharply by 10.9% in March, marking the first time since 2013 that monthly losses exceeded 10%. The escalation of U.S.-Iran tensions drove oil prices significantly higher, bringing inflation risks to the forefront. Market expectations for the Federal Reserve's interest rate cut path shifted, leading to selling pressure on gold ETFs, which had seen substantial inflows the previous year. Additionally, liquidity shocks exacerbated the short-term correction through futures and options markets. Currently, the geopolitical situation in the Middle East may be approaching a critical juncture, with oil prices at a crossroads. The focus of gold market pricing may shift toward assessing the impact of supply shocks on economic stagnation, and the initially priced expectations of interest rate hikes may require revision. Looking ahead, we believe that whether it is a post-de-escalation oil price correction, a return to monetary easing, or supply shocks intensifying recessionary pressures and highlighting gold's safe-haven appeal, gold investment demand and prices may have room for upward recovery. Furthermore, recent actions by the Turkish central bank to sell gold reserves for liquidity management have attracted significant attention. We consider the risk of this behavior spreading further among Gulf countries to be relatively limited and do not believe it signals a change in the medium- to long-term support for central bank gold purchases driven by geopolitical competition and strategic security needs.
Inflation risks took precedence, leading to gold ETF sell-offs in European and U.S. markets. In our annual outlook report released in November 2025, we highlighted that the historic rise in gold prices in 2025 resulted from a combination of cyclical demand, represented by ETFs, and accelerated central bank purchases since 2022, differing from the structural buying dominance seen in 2023-2024. According to the World Gold Council (WGC), global gold ETFs added nearly 800 tons last year, roughly matching the 863 tons purchased by central banks during the same period. Given that cyclical demand carries higher reflexivity risks, historical analysis suggests that a shift in Fed policy from easing to tightening could be one of the scenarios triggering a downturn in cyclical gold demand and a significant price correction in 2026.
Since the escalation of U.S.-Iran tensions in late February, COMEX gold prices declined by 10.9% in March, the first such drop since 2013 and the fifth since 2000. The primary driver of this decline appears to be rising oil prices, which reignited inflation concerns and altered expectations for Fed rate cuts, prompting sell-offs in gold ETFs that had accumulated significant holdings last year. Per WGC data, global gold ETFs saw substantial outflows of 87 tons in March, the highest monthly reduction since October 2022. Regionally, North American ETFs led the sell-off with an 82-ton reduction, while European markets减持11 tons. Unlike previous避险phases, such as the early stages of the Russia-Ukraine conflict in 2022, where gold was bought to hedge short-term volatility, European and U.S. markets now appear more focused on inflation rebounds and shifting interest rate expectations. Meanwhile, Asian and other regions saw a 6-ton increase in ETF holdings, reflecting some safe-haven demand but insufficient to offset Western selling. Additionally, temporary liquidity shocks pressured gold futures and options positions, amplifying short-term price declines. CFTC data show COMEX gold futures speculative net longs fell by approximately 14 tons in March, similar to periods of high VIX volatility, while SPDR gold ETF options net positions also retreated significantly from highs.
The pressures of economic stagnation may be underestimated, leaving room for gold's upward recovery. Geopolitical tensions and surging oil prices have introduced unexpected variables into the U.S. economic cycle. After slowing again in 2025, weaker employment data prompted the Fed to resume rate cuts in September, providing gold with a breakout opportunity. Given weakening U.S. economic momentum, leadership changes at the Fed, and mid-term election considerations, our baseline scenario anticipates further economic slowing this year, with continued monetary easing supporting cyclical gold demand. Recent U.S.-Iran tensions present two risk scenarios: first, oil-driven inflation risks potentially altering the Fed's easing path—a worst-case scenario for gold, reminiscent of Q2-Q4 2022; second, supply shocks deepening stagnation, raising recession risks. In the latter case, post-liquidity shocks, gold's role as a safe-haven asset could become prominent under the commodity market's "Merrill Lynch Clock" framework.
The gold market may have initially priced the first risk, but unlike 2022, the likelihood of the Fed turning hawkish this year appears low. According to our macro analysis, the U.S. economy was overheating in 2022 with strong employment, requiring monetary tightening to curb demand amid oil price spikes from the Russia-Ukraine conflict. This year, however, with weakening growth, cooling employment, and high oil prices, conditions for rate hikes are absent. Historical data since 1975 suggest that a 10% supply-driven oil price increase could reduce global GDP growth by about 0.56 percentage points and U.S. GDP by 0.41 points. Above $100/barrel, the drag on GDP may intensify; for the U.S., a 10% price rise could reduce growth by 0.50-0.65 points.
With Middle East tensions at a critical stage and oil prices facing directional uncertainty, gold market pricing may shift toward assessing supply shocks' impact on stagnation, potentially revising initial rate hike expectations. Thus, whether from post-de-escalation oil corrections, renewed monetary easing, or supply shocks highlighting gold's safe-haven role, we see room for recovery in gold investment demand and prices.
Risks of central bank gold sales spreading appear limited, with medium- to long-term buying demand intact. Amid cyclical demand pressure, the Turkish central bank's sale of approximately 60 tons of gold reserves for liquidity management post-U.S.-Iran tensions has sparked debate over short-term sales risks and sustained central bank purchasing. Short-term, Turkey's high gold share in reserves (near 60%) makes such actions reasonable for forex liquidity. Other Gulf countries hold lower gold shares, suggesting limited扩散risk. Notably, much of Turkey's recent gold transactions involved swaps, with gold returning to reserves upon contract maturity.
Medium- to long-term, geopolitical competition and strategic security needs should continue to structurally support central bank gold accumulation. Historically, eased international competition and reduced uncertainty in the 1990s led global central banks, led by European institutions, to become net sellers. Post-2008, they resumed net buying, accelerating after 2022, reflecting structural shifts in the macro order. Correspondingly, effective global sanctions tracked by GSDB have risen significantly since 2010, with complexity and scale far exceeding 1990s levels. While market volatility may affect buying pace, the medium- to long-term trend of reserve accumulation remains intact. In January-February, global central banks added about 25 tons, with Poland accelerating purchases by 20 tons in February, bringing total reserves to 570 tons—still below its 700-ton target. China's central bank has increased gold reserves for 16 consecutive months, raising its share in official reserves to 10%.
Risks: Unexpected developments in Middle East geopolitics, Federal Reserve policy shifts, and financial market volatility.
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