"When the cannon fires, ten thousand taels of gold": Does this no longer work? Why is gold falling? Latest institutional analysis

“The cannon sounds, and a thousand ounces of gold are worth a fortune.” Since the US-Iran conflict, this saying seems to have lost its effectiveness. The spot price of London gold has fallen nearly 10% since the conflict began, dropping to a low of $4,502 per ounce, with the $4,500 level once again at risk.

Institutions believe that, based on current drivers, the core of gold’s trend lies in the upward movement of energy prices constraining interest rate expectations. As the Middle East conflict persists and crude oil prices remain high, market expectations for a slowdown in inflation have become more cautious, weakening the pricing of rate cuts, which has led to a phase of dollar strengthening and put pressure on gold.

Looking ahead to 2026, institutions suggest that the US fiscal deficit remains high, and against the backdrop of a long-term de-dollarization trend (global central banks increasing gold holdings), there is still long-term upside potential for gold prices. However, compared to 2025, the marginal changes in the US interest rate cycle and increased trading activity in 2026 may boost gold volatility, requiring more tactical timing.

Gold Faces Continued Adjustment

Since the US-Iran conflict, gold has not continued its upward trend as market expectations suggested, but instead has experienced a significant correction.

On March 18, the London gold spot price fell 3.86% to $4,813.53 per ounce; on March 19, it dropped sharply again by 3.39% to $4,650.50 per ounce, with intraday lows around $4,500. Although there was a rebound on March 20, the total correction for the month exceeded 10%.

Cinda Futures pointed out that, based on current drivers, the core of gold’s movement is energy prices rising and constraining interest rate expectations. As the Middle East conflict continues and crude oil prices stay high—Brent futures previously remained above $100—market concerns about inflation stickiness have increased. In this context, market expectations for inflation slowdown have become more cautious, weakening rate cut expectations, and pushing the dollar to strengthen temporarily, which suppresses gold.

Meanwhile, despite weaker employment data earlier, inflation expectations driven by energy are offsetting this bullish factor, making gold’s short-term outlook somewhat bearish. On the policy front, markets generally expect the Federal Reserve to hold rates steady for the second consecutive meeting, but the key lies in forward guidance on the interest rate path. Powell’s assessment of inflation and the impact of geopolitical conflicts will directly influence market expectations for future easing.

CITIC Construction Investment revisited history to understand the current market. In a recent research report, CITIC pointed out that, contrary to intuition, geopolitical conflicts are not necessarily favorable catalysts for gold prices. Historical major conflicts related to the Middle East show that: one month before conflict erupts, the probability of gold price increases is high, with an average gain close to 4%; but three months after the conflict, gold price trends vary greatly, with no clear upward trend, and even a higher probability of decline within one month, with an average performance turning negative.

Examining the trend over specific periods also reveals similar features: gold prices tend to rise before conflicts, then enter a period of consolidation after conflict erupts. Conflicts more closely related to the Middle East—such as the Iraq War, overseas wars, Iran-Iraq War, Russia-Ukraine War—show a higher likelihood of gold prices falling after the conflict, with the Iran-Iraq War seeing declines of up to 15%.

“After conflicts, overall market risk appetite drops sharply, and liquidity shocks may occur, leading to gold being sold off; before conflicts, gold prices have already risen, and positive effects materialize after the conflict,” CITIC explained.

Many Institutions Still Optimistic About Gold Prices

Although recent gold prices have been weak, many institutions remain optimistic about the future of gold and gold stocks.

Ruo Zhiheng, Chief Economist at Yuekai Securities, stated that in the long term, favorable factors supporting gold prices still exist. The recent sharp decline in gold is not a sign of a bull market ending but a deep correction during an upward trend. He analyzed from three perspectives:

First, global geopolitical risks are becoming normalized. The diplomatic policies of the Trump administration have increased conflict frequency and chain reactions, which will continue to weaken the credibility of the dollar.

Second, non-US central banks remain eager to buy gold, likely continuing to push up the price center of gold. Under the new normal of geopolitical risks, increasing gold holdings has become an important strategy for non-US central banks to hedge against sanctions and enhance financial security. Emerging market central banks are especially active, with room for further reserve growth.

Third, if global economic risks shift from “inflation” to “stagnation,” gold prices could find support. High energy prices directly erode consumers’ real purchasing power and may also lead to monetary tightening to curb demand and inflation, potentially causing economic slowdown or recession. In a “stagnation” environment, gold’s strategic value will be further highlighted.

Historically, during economic recessions, traditional assets like stocks and bonds often face profit declines and valuation compression, while gold tends to have a relative advantage.

Additionally, the downward pressure on the economy will push central banks toward easing monetary policy. If the Fed shifts toward loosening due to employment or recession risks, real interest rates are likely to decline, reducing the opportunity cost of holding gold and opening room for prices to rise.

“After each Middle East conflict, the medium-term trend of gold prices still depends on dollar credibility and liquidity factors,” CITIC Securities pointed out. Looking ahead, they expect that the continuation of loose liquidity and weakening dollar credibility will continue to support higher gold prices.

The firm also noted that valuation or price-to-earnings (PE) ratios historically favor the gold sector’s upside, with current leading companies’ PE ratios falling back to 15-20 times—near historical lows. Considering the high correlation between recent stock and gold prices, they are optimistic about new highs in gold prices driving stock price increases.

Editor: Tactical Heng

Layout: Wang Lulu

Proofreading: Su Huanwen