Key insights
- A strategist note highlights three factors weighing on gold prices: a stronger dollar and rising interest rate expectations, overbought positioning, and softening central bank demand. While geopolitical tensions typically boost gold, these headwinds have caused a 13% decline since the start of the conflict. The note suggests these pressures are cyclical and maintains a constructive long-term outlook, implying potential downside risk for equities if gold's safe-haven appeal diminishes due to macro factors.
Investing.com – Gold prices have come under pressure despite heightened geopolitical tensions, with the metal falling around 13% since the start of the conflict, according to a strategist note, defying expectations that war would drive a sustained rally.
The weakness has been driven by three key factors.
First, a stronger U.S. dollar and rising interest rate expectations have weighed on gold. A firmer greenback makes gold more expensive for holders of other currencies, while higher yields increase the opportunity cost of holding non-yielding assets like bullion. This macro backdrop has historically been a headwind for precious metals and remains a dominant driver of recent price action.
Second, positioning and technical factors have played a role. Gold, and even more so silver, entered the recent period in overbought territory, leaving prices vulnerable to a pullback. In risk-off episodes, crowded trades can unwind sharply as investors rush to raise liquidity. The strategist pointed to past episodes, including during the 2008 financial crisis, when gold saw steep short-term declines despite broader market stress.
Third, central bank demand appears to be softening. Some governments are reportedly scaling back gold purchases to prioritize other spending needs. Poland’s central bank is said to be considering selling gold to fund defense expenditures, while Turkey has already sold reserves in recent weeks to support its currency. There are also indications that some Gulf states may be slowing purchases amid weaker export revenues.
Despite these pressures, the strategist expects these headwinds to ease over time. As dollar strength moderates, rate expectations stabilize, and official sector demand normalizes, gold could regain its footing.
The note maintains a constructive long-term outlook on the metal, arguing that the current weakness reflects cyclical pressures rather than a shift in the broader bullish case.