Is gold being “wrongly punished” by liquidity shocks? Standard Chartered predicts: Gold prices will regain their uptrend and break records again

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Source: Jintiao Data

Gold’s safe-haven status is once again questioned. Since the outbreak of conflict in the Middle East, gold prices have plummeted sharply. This contradicts the traditional view of gold as a safe-haven asset that provides stability (or appreciation) during market turmoil, increased uncertainty, or geopolitical tensions. However, Suki Cooper, Head of Global Commodities Research at Standard Chartered Bank, believes that even if gold’s role shifts in the short term, its safe-haven status remains solid, and she expects gold prices to challenge historical highs again. Her views are as follows.

Gold can play both the leading role and a supporting role in the market, but this does not mean it has lost its traditional functions.

During crises, investors rotate assets, and losses in the stock market can trigger additional margin calls. Gold is one of the few assets that can be liquidated at any time to provide liquidity without large losses.

Historically, such liquidity demands tend to suppress gold prices within 4 to 6 weeks after a crisis erupts; once liquidity pressures ease, investors re-enter gold. If the crisis persists, this process may take longer—for example, during the global financial crisis, it took more than four months for gold to recover its losses.

Although this time, the decline in gold prices far exceeds that during previous geopolitical conflicts (especially Middle Eastern wars), this divergence is not without reason.

In January, gold hit a record high, and exchange-traded products (ETPs) tracking gold also surged to new highs amid investor demand, making gold the primary target for selling. In January, the premium of spot gold relative to the 50-day moving average soared to its highest since 1999. Now, the situation has reversed: spot gold has fallen below the 50-day moving average, with the largest deviation since 2013. Gold moved from an overbought zone in January to oversold after the conflict broke out.

So, what signals is the gold price trend sending? First, the market remains uncertain about the duration of the conflict, and liquidity demands persist. Implied volatility of gold has surged to pandemic levels, which is evidence of this.

Gold is also currently returning to a short-term trend dominated by U.S. interest rate expectations and policy uncertainty surrounding the current crisis.

In the long term, if market expectations of rate hikes increase, the opportunity cost of holding gold rises (since gold does not generate dividends or interest), and gold prices tend to fall. This relationship was temporarily broken at the end of 2022 due to central bank gold purchases, but in recent weeks, as U.S. rate cut expectations have cooled this year, the relationship has reasserted itself.

ETP capital flows and central bank gold purchases are two key indicators to watch. ETP investors focus more on real yield expectations rather than structural drivers. March’s net redemption of ETPs may hit its largest since September 2022, indicating short-term funds are moving away from gold’s structural and safe-haven logic. However, ETP selling has begun to slow, suggesting that overextended positions have been largely cleared.

On the central bank side, markets are watching for signs of sales of accumulated gold reserves in recent years. Last year, central bank net gold purchases slowed from over 1,000 tons to 863 tons, but in dollar terms, they still hit a record high.

Meanwhile, the reasons supporting higher gold prices are also sufficient. Current gold prices do not account for recession risks. During recessions, gold typically gains an average of 15%, while industrial commodities are dragged down by declining output.

Additionally, gold prices have not reflected stagflation concerns. Even if the conflict ends tomorrow, oil prices are likely to stay high longer, intensifying inflation worries. As a store of value, gold usually strengthens in environments of rising inflation, especially when inflation exceeds expectations and persists.

Many structural drivers of gold remain solid, including high debt levels in the U.S. and globally, currency devaluation, tariffs and trade uncertainties, and geopolitical risks.

Gold is currently priced with multiple risks in mind, so its short-term trend is unlikely to be linear. Existing liquidity pressures may continue to suppress gold prices for a while. But we still expect gold prices to rebound in the coming months. On the downside, the 200-day moving average has never been broken since October 2023, providing strong support. The overall direction of the gold market remains upward.

This article is from Suki Cooper, Head of Global Commodities Research at Standard Chartered Bank.

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Editor: Zhu Hennan