On the morning of March 19th, Beijing time, the spot gold market experienced significant volatility. The price of gold plunged sharply, hitting a low of $4,803 per ounce, marking a new low for the month. Subsequently, gold prices staged a partial recovery, regaining some of the lost ground. As of 11:55 AM, the price was quoted at $4,851.72 per ounce, representing an increase of 0.79%.
Influenced by the weakening international gold price, the prices of domestic branded pure gold jewelry also declined. For instance, the price per gram for Chow Sang Sang gold jewelry dropped to 1,492 yuan, a decrease of 55 yuan per gram compared to the previous day's price of 1,547 yuan.
Geopolitical risks and the Federal Reserve's policy decision exerted a dual downward pressure on gold prices. Geopolitical tensions in the Middle East have escalated again. It was reported that the Speaker of the Iranian Parliament stated on social media that attacks on Iran's infrastructure by adversaries would be "tantamount to suicide," emphasizing that Iran has established a principle of "reciprocal action" and that a new phase of conflict has begun.
Simultaneously, the U.S. Federal Reserve concluded its two-day monetary policy meeting. The Fed announced it would maintain the target range for the federal funds rate between 3.5% and 3.75%. This decision aligned with market expectations, representing the second consecutive pause in rate changes this year. In its policy statement, the Fed noted that the impact of the Middle East situation on the U.S. economy remains uncertain, and overall economic outlook uncertainty is still elevated. Current indicators suggest economic activity is expanding at a solid pace, and the unemployment rate has changed little in recent months. However, job gains remain modest, and inflation continues to run somewhat elevated.
Donghai Futures commented that threats from the Iranian Revolutionary Guard Corps to attack multiple energy facilities in the Middle East led to a sharp rise in crude oil prices and a significant increase in inflation expectations. Coupled with a relatively hawkish tone from the Fed's policy decision, which strengthened the U.S. dollar index, these factors collectively put pressure on precious metal prices.
Despite short-term headwinds, the fundamental logic for a long-term upward trend in gold remains intact, and institutions believe the window for gold allocation is still open. The trajectory of geopolitical conflicts remains unclear, and inflation expectations have risen substantially. Will the Federal Reserve proceed with interest rate cuts in the future?
Kaiyuan Securities suggests that while heightened Middle East tensions could lead to a higher central price for oil and push oil prices up, they also bring economic downward pressure. For the Fed, the current strategy likely involves extending the observation period. Exogenous shocks causing inflation increases during a rate-cutting cycle have a relatively limited pass-through to core inflation, making a return to interest rate hikes an unlikely policy choice for the Fed. However, the possibility of increased internal divergence within the Fed might grow, potentially leading to further delays in rate cuts. Under a baseline scenario, the Fed might still have room for rate cuts in 2026, likely occurring after the third quarter.
Looking ahead, Shenyin & Wanguo Futures believes that although inflation pressures have led to downward revisions in expectations for Fed rate cuts, exerting short-term pressure on precious metals, the medium to long-term price center for precious metals is expected to continue rising. Concerns about the sustainability of U.S. fiscal policy are intensifying, compounded by the restructuring of the global political and economic order, the diversification of global central bank reserve assets, and the ongoing process of de-dollarization. Therefore, considering multiple factors including geopolitical risks, inflation hedging demand, de-dollarization, and central bank gold purchases, the long-term upward trend for gold remains unchanged.
Regarding investment strategy, a latest research report from CITIC Securities indicates that following historical Middle East conflicts, the medium-term trend of gold prices has ultimately depended on U.S. dollar credibility and liquidity factors. Looking at the current conflict, the continuation of two major trends—easy liquidity conditions and a weakening U.S. dollar credit—is expected to continue driving gold prices higher. Historically, advantages in valuation or stock price percentile have amplified the upside for gold sector stocks. Currently, the PE valuations of leading companies have retreated to historically low levels of 15-20x. Considering also the high synchronicity in recent years between stock price peaks and gold price peaks, there is optimism that new highs in gold prices will drive new highs in stock prices.
Comments