Gold prices fluctuate sharply, and gold ETF holdings shrink! What’s the outlook moving forward?

International gold prices continue to retreat, and the “safe-haven halo” of gold assets has shown signs of loosening in the short term.

In recent days, international gold prices have seen increased volatility. On March 23, the international spot gold price briefly fell below the 4100 USD per ounce mark, but gold prices swung sharply that day and closed above 4400 USD per ounce. On March 24, as of the time of this release, the international spot gold price has been trading around 4400 USD per ounce.

At the same time, gold ETF flows have weakened in tandem. As of March 23, over the past week, the overall size of gold ETFs has shrunk noticeably. Specifically, as of March 23, over the past week, gold ETFs overall have shown a phased net outflow trend, and the scale reduction of some leading products has exceeded 20 billion yuan. On the equity side, gold stock ETFs were also dragged down: the size of leading products declined by more than 3 billion yuan, indicating that the market’s willingness to allocate to the gold industry chain has cooled in parallel.

Overall, as gold prices at high levels have seen heightened range-bound fluctuations, the trading congestion accumulated earlier has begun to unwind. Combined with some funds choosing to take profits, short-term volatility in gold assets has been amplified significantly. Going forward, the gold price trend will still be jointly influenced by multiple variables, including the global liquidity environment, the level of real interest rates, and geopolitical factors.

Short-term gold market may continue to trade volatile

Xin Yuan Fund analysis says that crude oil prices have remained elevated, causing multiple countries’ central banks’ statements at last week’s interest-rate decision meetings to be more hawkish. The global “super week” of central banks has ended; central banks in developed economies such as the United States, Japan, the United Kingdom, and Canada, as well as several emerging economies, held meetings at the same time. In last week’s press conference, Federal Reserve Chair Jerome Powell said: “In the short term, rising energy prices will push up overall inflation, but it is still too early to judge the scope and duration of its potential impact on the economy.”

Xin Yuan Fund believes that in the short term, under the backdrop of a warming geopolitical situation and a significant rise in global stagflation threats, global central banks have turned more hawkish. Market expectations for rate hikes move higher; the rise in nominal interest rates exceeds inflation expectations, leading to a rise in real interest rates and a relatively large adjustment in gold prices. In addition, gold prices’ volatility is currently at a high level, so it is not advisable to bottom-fish with large positions; it is suggested to wait until volatility converges before attempting to enter the market. In the long term, however, the narrative for Western bloc fissures, geopolitical changes, a decline in U.S. dollar credit, and central banks’ long-term gold-buying has not yet shown signs of reversal. Gold and silver still have allocation value in the medium and long term. Taken together, the gold market this week may see volatile adjustments.

Yaoyuan, an Asia senior investment strategy analyst at the investment research institute of Crédit Agricole Asset Management, says that it is necessary to distinguish gold’s short-term volatility from its medium- to long-term outlook. In the short term, geopolitical conflicts and the resulting energy price shocks are the dominant drivers of the global “risk-off” trade. In this environment, investors tend to “cash out” their portfolios. To pull funds back under the dark clouds of war, investors will choose to reduce holdings of all assets, especially those that have performed well recently.

Under this trading logic, selling pressure weighs on gold. Thanks to the strong rebound in January and February, gold is still one of the best-performing assets since the start of the year; meanwhile, the buying momentum from trading mainly benefits the U.S. dollar—especially cash—not Treasuries. Therefore, if someone is hoping that whenever risk assets are sold off, gold can rebound with the precision of a pendulum, they will undoubtedly be disappointed—because gold is not that kind of perfect short-term safe-haven tool.

Gold investments still have long-term resilience

Yaoyuan believes that when you extend the time horizon, gold’s historical performance in withstanding geopolitical, macro, and policy risks is widely recognized. They maintain an over-allocation view on gold. Although gold prices have recently been swinging violently, this does not change their long-term structural value.

Yaoyuan says the allocation logic for gold can be explained from three dimensions: First, the U.S. dollar is in a structural downtrend cycle. Under multiple pressures, including “twin deficits” (a fiscal deficit and a trade deficit), stretched valuations, and capital outflows, the dollar’s status as the international reserve currency is facing certain challenges. As a hard asset that does not depend on any sovereign credit, gold naturally has the function of hedging against dollar depreciation.

Second, geopolitical risk has become the norm. The conflict in the Middle East is only a snapshot of global geopolitical tensions. Against the backdrop of “de-dollarization” becoming a strategic choice for central banks in many countries, gold’s position as the ultimate safe-haven asset is being reshaped. Central banks around the world have increased their gold reserves for consecutive years, while the private sector’s share of gold allocation remains below 3%, which implies a huge demand gap.

Third, traditional stock-bond portfolios fail. The classic “60/40” portfolio (60% stocks, 40% bonds) faces challenges in the current environment. The key is that the correlation between U.S. Treasuries and U.S. equities has shifted from negative to positive, and bonds have lost the hedging function of a “safe haven.” When both stocks and bonds come under pressure at the same time, investors need a new “stabilizer.”

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