The gold market experienced intense selling pressure amid a confluence of shocks including escalating Middle East conflicts, surging energy prices, and a reversal in interest rate expectations. On Friday, international gold prices continued their decline, recording the most significant weekly drop since 2011. At the market close, spot gold fell sharply by 3.43% to $4,498.31 per ounce, accumulating a weekly loss of approximately 9.5%. Spot silver saw a more pronounced decline, dropping 6.89% to settle at $67.801 per ounce, with a weekly decline exceeding 14%.
The primary driver behind this gold price downturn is a rapid shift in the macroeconomic landscape. As tensions between the US and Iran intensified, pushing energy prices higher, market concerns about rebounding inflation increased significantly. Concurrently, simultaneous strength in the US dollar and US Treasury yields diminished the appeal of gold, a non-yielding asset.
A crucial factor has been the swift change in market expectations. The previously dominant narrative of interest rate cuts has quickly unraveled, with traders now speculating that the Federal Reserve might implement rate hikes later this year. The probability of such a move has risen to approximately 50%. Expectations for rising interest rates typically exert downward pressure on gold, constituting a key reason for the current price correction.
The evolution of geopolitical risks is also having a complex effect on market sentiment. Although conflicts would typically boost safe-haven demand, the market's focus has shifted more towards the energy supply shock and its implications for inflation and monetary policy paths. With tensions rising around the Strait of Hormuz and news of potential expanded US military deployments, investor risk appetite has waned, leading capital to flow towards highly liquid assets like the US dollar.
From a market structure perspective, the decline has been amplified by a confluence of technical and funding factors. Gold prices had previously approached historical highs, attracting substantial long positions and creating inherent correction pressure. As prices began to fall, numerous stop-loss orders were triggered, accelerating the sell-off. Furthermore, liquidity needs arising from declines in both equity and bond markets prompted investors to sell gold to cover losses elsewhere.
Additionally, outflows from Gold ETFs and a slowdown in central bank purchasing have weighed on market sentiment. Data indicates that Gold ETFs have seen net outflows for three consecutive weeks, with total holdings decreasing by over 60 tonnes, signaling a clear withdrawal of short-term capital.
Despite the pronounced short-term pressure, gold has maintained a positive trend for the year, with its year-to-date gain still standing at approximately 4%. Analysts suggest the current price correction is more a phase of adjustment in response to a rapidly changing macro environment. They note that the long-term investment case for gold, underpinned by persistent inflation risks, widening fiscal deficits, and ongoing geopolitical uncertainty, has not fundamentally altered.