Geopolitical news stirs the market, and gold prices perform an intraday "V" shape reversal

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Source: Xinhua Finance

On Monday (March 23), the international spot gold market experienced an extreme "roller coaster"行情—gold prices first hit a four-month low, falling below $4100 per ounce, before quickly rebounding, recovering the $4100, $4200, and $4300 levels in succession, and even briefly rising above $4400. On Tuesday (March 24), the Asian market continued its volatile upward trend, with the tug-of-war between bulls and bears intensifying.

Analysis indicates that the repeated geopolitical news has become the core factor driving gold price fluctuations.

The extreme volatility in gold prices is primarily due to the “inflation-interest rate” logic triggered by geopolitical conflicts suppressing and reversing traditional safe-haven logic. At the beginning of trading on March 23, Trump’s strong statements sparked market panic over potential disruptions to Middle Eastern energy supplies, causing international oil prices to surge sharply and raise global inflation expectations. The market quickly repriced the Federal Reserve’s monetary policy, betting that the Fed would maintain high interest rates for an extended period or even resume rate hikes. As a non-yielding asset, gold’s opportunity cost increased in tandem with U.S. Treasury yields and the dollar index, leading to substantial sell-offs of gold in favor of interest-bearing assets like the dollar and U.S. Treasuries, which became the core reason for the sharp decline in gold prices.

However, just as the market fell into pessimism, Trump announced a delay in strikes against Iran, marking a key turning point for gold prices. This news directly dissipated the war premium in oil prices, causing international oil prices to quickly drop over 10%, significantly easing concerns over uncontrollable inflation. The market re-incorporated expectations for interest rate cuts by the Fed, the dollar index quickly fell back, and U.S. Treasury yields declined, leading to a noticeable decrease in the opportunity cost of holding gold. At the same time, the weakening dollar made gold, priced in dollars, more cost-effective for investors holding non-dollar currencies. A combination of factors drove gold prices to stage a “V”-shaped reversal, completing a textbook-style market correction.

It is important to note that the foundation of this market reversal still carries uncertainty. Direct talks between the U.S. and Iran remain highly uncertain, and the future trajectory of the geopolitical situation in the Middle East still holds significant suspense. This also means that the fragile balance in the market is difficult to sustain, and fluctuations in oil prices will continue to be a key link connecting geopolitical situations and gold prices; any geopolitical news can trigger another sharp fluctuation in gold prices.

In the short term, gold prices will continue to be dominated by both the geopolitical situation in the Middle East and the Fed’s interest rate expectations. The 200-day moving average at $4096.27 per ounce serves as a crucial short-term support level; as long as this level is not effectively breached, it will provide a technical floor for gold prices. Currently, the dual attributes of gold are particularly evident, with changes in the geopolitical situation affecting its safe-haven premium, while inflation and interest rate expectations determine its core valuation. The tug-of-war between these two logics will continue to dominate short-term market movements. It is expected that gold prices will maintain a broad range of fluctuations in the short term, and caution should be exercised regarding sudden volatility stemming from geopolitical news.

Overall, this roller coaster market also highlights the current characteristic of the gold market being driven by a single event. Technical analysis and fundamental logic have temporarily given way to news influences. For gold prices to genuinely establish a bottom and rebound, we still need to wait for clear developments in the geopolitical situation in the Middle East or a substantive shift in expectations regarding the Fed’s monetary policy. In the near term, a second bottom confirmation of support cannot be ruled out.

(Author: Wang Shenghao, Senior Analyst at Zhongzhou Futures)

【Gold Time】 is a special program jointly created by Xinhua Finance and China Gold News, focusing on the gold and jewelry market. It comprehensively covers policy dynamics, investment information, risk analysis, and more in the gold and jewelry industry, providing authoritative, professional, and comprehensive financial information services in the gold and jewelry sector. Xinhua Finance is a national financial information platform established by Xinhua News Agency.

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