The gold sector has become a disaster zone. Has the adage 'buy gold in troubled times' completely failed?
On March 23, the gold sector in the A-share market became the hardest hit area, with $CHIFENG GOLD(600988.SH) hitting the 10% down limit, and $Hunan Silver(002716.SZ), $SJI(000975.SZ), $SC GOLD(001337.SZ) all plunging sharply.
Gold stocks in the Hong Kong market also skidded, with Chifeng Gold (06693.HK) down 25.1%, Lingbao Gold (03330.HK) down over 12%, and Shandong Gold (01787.HK), Tanjin Mining (00621.HK), Tongguan Gold (00340.HK), and Laopu Gold (06181.HK) all falling significantly.
On the news front, as of press time on March 23, London spot gold plunged nearly 5%, closing at $4,243 per ounce. Since early March, London spot gold has accumulated a decline of over 20%, setting a record for the longest losing streak in years. Gold, long hailed as the "king of safe-haven assets," has completely fallen out of favor.
Currently, with the Middle East conflict continuing to spread, U.S.-Iran military tensions escalating, shipping in the Strait of Hormuz being disrupted, and international oil prices soaring, the traditional investment logic of "when the cannons roar, gold is worth ten thousand taels" would suggest funds should flock to gold for safety. Yet reality is the complete opposite, leaving countless investors puzzled: Has the age-old rule of "buying gold in troubled times" truly failed?
Has Gold's Trading Logic Changed?
Industry insiders point out that gold prices are driven by three factors: real interest rates, U.S. dollar credit, and risk sentiment. The recent plunge appears on the surface to be due to delayed expectations for Fed rate cuts, leading the market to reassess real rates. At a deeper level, it's a shift in pricing logic, where geopolitical safe-haven demand is giving way to inflation trading. Soaring oil prices are pushing up inflation expectations, causing funds to flow from gold to the U.S. dollar and U.S. Treasuries, triggering a stampede of selling.
Currently, major central banks like the Fed have generally adopted a wait-and-see stance in recent rate meetings, strengthening market expectations of "no rate cuts this year" or even "rate hikes in the first half of 2025."
A research report from SDIC Securities notes that precious metals are highly sensitive to real interest rates, and the shift in macro expectations has triggered a capital exodus. BMI, a research arm of Fitch, also points out that due to a stronger dollar and reduced likelihood of Fed policy easing, funds are shifting from safe-haven assets to macro-driven assets, which may further increase downward pressure on gold.
In addition, passive selling on the liquidity front has exacerbated the decline in gold prices. Luo Zhiheng, chief economist at Yuekai Securities, stated that with global stock markets weakening simultaneously recently, some highly leveraged financing positions have faced forced liquidations. Gold, having accumulated substantial gains earlier, holds massive profit-taking positions, making it the preferred target for capital realization.
What's Next for Gold? Institutions Show Clear Divergence in Views
Faced with the extreme plunge in gold prices and the heavy blow to the gold sector, major brokerages and mainstream institutions show significant divergence in their outlook for future gold price trends. Some institutions adhere to the long-term bullish logic, believing this round of decline is merely a deep correction within a bull market.
Huachuang Securities believes gold prices are entering a super-cycle, with central bank gold-buying demand continuously strengthening, and safe-haven and investment demand likely to persist long-term.
UBS Wealth Management points out that geopolitical uncertainty, sustained central bank buying, and investor demand for safe-haven assets will continue to support gold prices. The recent pause in gold's rally is consistent with early-stage performance in past geopolitical crises—investors typically first focus on liquidity and hedging tools before returning to the gold market.
Meanwhile, Morgan Stanley's (Big Mo) research report suggests gold prices face a situation of heightened two-way risks. Although the long-term bullish logic (central bank buying, Fed rate cuts) remains, recent geopolitical conflicts have triggered inflation pressure and potential monetary policy shifts, bringing significant downside risks to gold prices.
CICC's research report also states that the "expectation gap" of geopolitical conflicts priced into different assets determines the subsequent trading logic, presenting both risks and opportunities. 1) Optimistic scenario: The Iran situation does not last too long, oil prices gradually retreat to a central range in Q3/Q4, and Wash takes over in June, then expectations for rate cuts in the second half of the year can still be anticipated; 2) Pessimistic scenario: The Iran situation drags on unresolved, oil prices remain high around $100 into Q3/Q4, Wash's succession is also forced to be delayed, and Powell remains as governor, then the probability of rate cuts within the year would be significantly reduced.
The bank believes that as long as the conflict is not expected to remain unresolved into Q3/Q4, the expectations currently priced into U.S. Treasuries and gold appear overly pessimistic, meaning there is instead a cost-effective opportunity to "go long," because if the situation does not drag on unresolved into Q3/Q4, rate cuts in the second half of the year are still possible.
Author: Feiyu
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