Recent sharp declines in gold prices have once again cast doubt on its status as a safe-haven asset, but Standard Chartered believes the downtrend does not negate gold's long-term upward momentum.
On Wednesday, Suki Cooper, Global Head of Commodities Research at Standard Chartered, wrote in a Financial Times column that the short-term pressure on gold prices stems from surging liquidity demand and cooling expectations for Federal Reserve interest rate cuts, rather than a fundamental erosion of gold's safe-haven status. She anticipates gold prices will resume their upward trend in the coming months and challenge historical highs once more.
Since the outbreak of Middle Eastern conflicts, gold prices have fallen by approximately 12%, a trend that contradicts the market's traditional perception of gold as a &#34;safe harbor.&#34;
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Suki Cooper stated that gold prices have quickly shifted from an overbought condition in January to an oversold state, indicating room for technical repair. Simultaneously, gold has not yet fully priced in recession risks and stagflation concerns, while multiple structural support factors remain intact, providing a foundation for a rebound.
<h2>Liquidity Pressure Dominates Short-Term Trend, Historical Patterns Show Limited Adjustments</h2>
Suki Cooper pointed out that during periods of market turbulence, investors tend to rotate across various assets. Stock market downturns trigger margin call demands, and gold is one of the few assets that can provide liquidity without generating losses. This mechanism explains the anomalous initial decline in gold prices during the crisis.
Historically, such liquidity demands typically suppress gold prices for four to six weeks after a crisis event. Once liquidity pressure eases, investors begin to rebuild their gold positions. If the crisis persists, the recovery period will correspondingly lengthen—during the global financial crisis, it took over four months for gold prices to recover lost ground.
The reason for this round of gold price declines being larger than those seen during previous Middle Eastern geopolitical conflicts is closely related to gold prices having just hit a new historical high in January. Suki Cooper noted that gold prices reached a record high in January, with exchange-traded products (ETPs) tracking gold prices also reaching new peaks. Strong investor demand made gold the preferred asset for liquidation during market turmoil.
From a technical perspective, the deviation of spot gold prices above the 50-day moving average in January reached its highest level since 1999. Following the outbreak of the conflict, spot gold prices have fallen below the 50-day moving average, with the deviation being the largest since 2013. Gold has completed a shift from extreme overbought to extreme oversold conditions in just a few months.
<h2>Fading Rate Cut Expectations Coupled with ETP Redemptions Continue Short-Term Pressure</h2>
Suki Cooper stated that the current short-term trend of gold prices is once again following U.S. interest rate expectations and policy uncertainties. Historically, rising expectations for interest rate hikes tend to suppress gold prices because gold does not offer dividends or interest income, and rising rates increase its opportunity cost. This relationship, temporarily disrupted by large-scale central bank purchases of gold at the end of 2022, has re-emerged recently as market expectations for Federal Reserve rate cuts this year have weakened.
Flows into exchange-traded products (ETPs) are another important indicator. Suki Cooper noted that ETP investors are more sensitive to expected real yields than to structural drivers. Net redemptions from ETPs in March are expected to show the largest monthly decline since September 2022, indicating that market demand for gold is shifting from structural or safe-haven drivers to short-term sentiment. However, the pace of ETP redemptions has begun to slow, suggesting that previously overcrowded long positions may have largely been cleared.
At the central bank level, markets are closely watching whether central banks will sell the gold reserves they have accumulated in recent years. Data shows that net central bank gold purchases declined from over 1,000 tons last year to 863 tons, but the scale of purchases in dollar terms still set a new record.
<h2>Recession and Stagflation Risks Remain Unpriced, Structural Support Intact</h2>
Despite short-term pressures, Suki Cooper believes the reasons supporting higher gold prices remain strong. She pointed out that gold prices have not yet reflected recession risks—historical data shows that gold prices average a gain of about 15% during economic recessions, while commodities with stronger industrial demand tend to face pressure due to declining output.
At the same time, gold prices have not fully priced in stagflation concerns. Even if the Middle Eastern conflict were to end tomorrow, oil prices would likely remain high for an extended period, thereby increasing inflation expectations. As a store of value, gold typically performs strongly in an environment of unexpectedly high and persistent inflation.
From a broader macroeconomic perspective, several structural drivers remain intact, including concerns over high U.S. and global debt, pressure on fiat currency devaluation, uncertainty in tariffs and trade policies, and ongoing geopolitical risks.
On the technical front, Suki Cooper noted that gold prices have not been decisively broken below their 200-day moving average since October 2023, which serves as an important price support line. She concluded that the short-term path for gold prices may not be smooth, and current liquidity pressures might persist for some time, but gold prices are expected to regain upward momentum in the coming months.

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Gold prices recently plummeted 12%, seemingly dimming their safe-haven appeal. However, Standard Chartered believes this is not the end of the gold narrative but rather a consolidation after overselling. Short-term culprits include liquidity selling pressure and fading interest rate cut expectations, while recession and stagflation risks remain unpriced. Structural support from central bank buying and high debt levels is still intact. The bank anticipates gold prices will rebound within months and break historical records again

- Recent declines in gold prices have raised questions about its status as a safe-haven asset; however, Standard Chartered Bank believes the long-term upward trend remains unchanged.  
- The short-term pressure on gold prices stems from increased liquidity demand and cooling Federal Reserve rate cut expectations, with predictions of a return to higher prices in the coming months.  
- Historical trends suggest that liquidity demands typically pressure gold prices shortly after crises, but once these demands ease, investor appetite for gold is expected to recover.

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Plummeted 12% Amid Middle East Conflict! Standard Chartered: Gold's Drop is a 'False Break,' Set to Break Records Again