The ongoing Middle East conflict continues to ignite inflation concerns. Can gold prices break free from the "ten consecutive declines"?

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Source: Jinshi Data

The chain reaction triggered by the surge in oil prices is forcing cash-strapped investors to take painful losses. If gold closes down again today, it will set a record for ten consecutive trading days of decline…

As market concerns about the Middle East conflict and its impact on inflation and global economic growth deepen, gold prices are heading towards a record tenth consecutive trading day of declines.

On another tumultuous trading day, gold prices fell by as much as 2% in early trading, highlighting its “seesaw” effect with oil prices. As of Tuesday before the European session, spot gold returned to an upward trend, rising above $4,400.

U.S. President Trump announced on Monday a delay in strikes on Iran’s power grid, which provided a brief respite for gold amid the war-induced plunge; however, shortly after, an Iranian official outright rejected the possibility of negotiations, and according to the Wall Street Journal, U.S. allies in the Persian Gulf may also become embroiled in the conflict.

The high energy prices caused by the conflict have increased inflation risks, forcing investors to sell off liquid and profitable gold assets to fill gaps in other assets.

On Monday, gold fell by 2%, marking a ninth consecutive day of decline; since the outbreak of the war until Monday’s close, gold prices have cumulatively dropped nearly 17%. Meanwhile, international oil prices rebounded on Tuesday.

Despite Trump’s announcement of a five-day “ceasefire period,” the direction of any potential negotiations and whether future vessels can safely pass through the Strait of Hormuz remains uncertain. Just fixing the damage to existing energy infrastructure will take considerable time. This means that inflation threats will continue to suppress gold prices, while expectations for interest rate hikes from the Federal Reserve and other global central banks are also rising, which undoubtedly poses a strong headwind for non-yielding precious metals like gold.

Suki Cooper, head of global commodities research at Standard Chartered Bank, stated, “This gold price correction is more severe than in the past.” She added, “After the market experiences extreme turbulence, it is quite normal for gold to endure four to six weeks of downward pressure, as it has been proven that when times are urgent, gold is often treated as a cash-out lifeline.”

After the outbreak of the Russia-Ukraine conflict in early 2022, a similar scene played out in the market: gold, as a safe-haven asset, initially skyrocketed, only to face a prolonged period of decline thereafter. The reason was also the shockwave caused by soaring energy prices sweeping across the entire market, further exacerbating inflationary pressures.

Peter Kinsella, head of global foreign exchange strategy at Swiss bank UBS, pointed out: “In the face of such significant crises, you typically see investors selling off heavily weighted, well-performing assets to raise funds to cover margin gaps for other loss-making assets (such as stocks, bonds, etc.).”

He noted that whether during 2022 or the global financial crisis in 2008, gold’s performance was quite similar. “Short-term price fluctuations are all about position adjustments,” he added, noting that the long-term fundamental logic supporting gold has not changed.

Despite the continuous decline in gold prices over the past few weeks, supported by geopolitical tensions, trade frictions, and the large-scale purchasing by central banks around the world, gold had previously experienced a long period of strong gains. It is worth noting that some countries that have been “madly stockpiling gold” are also major energy importers, and this war has caused them to hemorrhage money in purchasing oil and gas, meaning that the dollars available for continuing to buy gold are dwindling.

From a technical perspective, gold is losing upward momentum, exhibiting a typical bearish pattern in the eyes of some traders, with both the intraday highs and lows continuously declining. However, gold prices are still holding above the 200-day moving average. In this regard, independent market commentator and former JPMorgan precious metals trader Robert Gottlieb wrote in a post that this “provides a certain level of reassurance for recent trends, indicating that the long-term technical support line remains intact.”

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Editor: Zhu Henan