Gold is falling, but there is no panic in the market

XAU/USD

Key zone: 4,250.00 - 4,500.00

Buy: 4,500.00 (on strong positive fundamentals); target 4,750.00; StopLoss 4,430.00

Sell: 4,200.00 (on a confident breakout of 4,250); target 3,850-3,700; StopLoss 4,270.00

The historical status of a “safe haven” is no longer sufficient to keep prices for precious metals at current levels. Quotes for gold, silver, and platinum have been declining for about ten consecutive trading sessions amid growing concerns about inflation caused by the conflict in the Middle East. Risks of a possible Fed rate increase are gradually intensifying, which is putting additional pressure on the metals market.

Let us recall:

Exchange-traded gold is denominated in U.S. dollars, therefore the stronger the American currency, the more expensive gold becomes for investors outside the United States and the weaker the demand. In periods of risk aversion, investors increasingly prefer dollar liquidity as a faster and more convenient alternative.

For the first time in the past ten years, the gold market has faced liquidity problems. The sharp drop in prices is linked not only to fundamental factors but also to the need to attract cash: investors are closing positions in gold to cover losses and margin requirements on other assets. In the event of further escalation of the conflict, such dynamics may intensify.

Additional reasons for pressure on the market:

• This is understandable — the high liquidity of gold in a period when risks are declining has a negative impact on its value. An additional factor is profit-taking after a multi-month rally — investors are closing gold positions to cover margin requirements on other assets.
• The fundamental pressure factor remains the growth of inflation expectations and the weakening of the chances of Fed policy easing in the near future. This negatively affects gold and silver: neither of these assets generates coupon income, therefore both become less attractive when bond yields rise and hopes for rate cuts weaken.
• Instead of investing in precious metals, investors are increasingly moving into income-generating instruments, as rising energy prices are strengthening expectations of tighter monetary policy.

The scale of the sell-off cannot yet be called record-breaking, however the speed of the price decline already exceeds the pace of declines observed in many previous periods.

In addition, the Middle East remains an important financial center for the precious metals market, a global “gold hub.” For example, the UAE remains a key point for gold processing and logistics toward Asia.

As early as the beginning of March, physical gold in Dubai was being sold at a discount of up to $30 per ounce relative to the London LBMA benchmark due to flight cancellations and logistics disruptions. The military conflict has effectively destroyed this price-stabilization system for both physical and exchange-traded gold.

And what is the result?

Gold futures are still struggling to recover, however the downward dynamics remain on most timeframes. The speculative decline in oil prices has caused only a technical correction — the overall bearish trend in the precious metals market has not yet been broken.

At the same time, markets are practically ignoring Trump’s refusal to carry out the threat to destroy Iran’s energy infrastructure, perceiving this as another element of his TACO policy (Trump Always Chickens Out). Cash flows associated with risk aversion are once again becoming the key factor driving prices.

However, in the long term, fundamental factors may still work in favor of gold. The growth of global fiscal risks, declining trust in fiat currencies, and high geopolitical instability preserve the potential for further growth.

It is expected that structural demand — especially from central banks of developing countries seeking to diversify reserves — will be able to form stable price support for gold in the $3750-3500 zone. That is why long-term bullish bets on this asset remain relevant despite the current correction. But careful fundamental analysis of the current situation is mandatory.

So we act wisely and avoid unnecessary risks.

Profits to y’all!