International Gold Price Repeatedly Tests the $5,000 Mark; Institutions: Medium to Long-term Bullish Logic Remains Unchanged

China Economic Journal Reporter Luo Ji, Beijing Report

Between 10 a.m. on March 16 and 10 a.m. on March 17, Beijing time, the international gold price (London spot gold) continued to fluctuate around the $5,000 per ounce mark. This is the third time in March (as of the intraday of March 17) that the $5,000 level has been contested.

As a result, domestic gold ETFs and gold stock ETFs both declined significantly. During the same period, gold stocks experienced increased volatility. On the morning of March 16, several gold stocks faced selling pressure, with secondary market prices dropping over 7% at one point.

Amid the tug-of-war between bulls and bears, multiple interviewed institutional experts stated that short-term gold price fluctuations are driven by spillover risks from the US-Iran conflict. Recently, gold prices have been highly volatile, and the market needs time to digest these movements.

Regarding the core drivers of the upward trend in gold prices, all interviewees agreed that factors such as continued central bank gold purchases, weakening of US dollar credit, and the Federal Reserve’s rate cut cycle have not fully reversed. The long- and medium-term logic for gold prices to rise remains unchanged.

Inflation concerns diminish, and rate cut expectations are revised, suppressing gold prices

“International gold prices once again fell below $5,000 per ounce, mainly due to two reasons,” said Qu Ruiru, Senior Deputy Director of Research and Development at Orient Securities.

Qu believes that, on one hand, the ongoing escalation of the US-Iran conflict shows no signs of easing, and rising crude oil prices will continue to boost global inflation expectations, prompting markets to reassess the monetary policy paths of major central banks.

“Especially with the Federal Reserve holding its March policy meeting in the past two days, the sustained rise in oil prices may reinforce the Fed’s stance to maintain high interest rates, putting pressure on gold prices,” Qu emphasized.

On the other hand, Qu analyzed that last week’s sharp decline in US stock markets triggered concerns over liquidity, leading to a strengthening of the US dollar, which disturbed gold prices.

Shang Yi Fund General Manager Wang Zheng further analyzed that international gold prices fluctuated around the $5,000 mark, with gold stocks experiencing significant corrections. Essentially, gold price volatility is driven not only by short-term oil price increases raising inflation fears and market revisions of rate cut expectations but also by normal adjustments from profit-taking at high levels.

Yebai Fund Manager Ye Peipei also believes that the current rising stagflation expectations, since March 16, have led the market to start pricing in the possibility of significant oil price increases and economic stagflation.

“On one hand, short-term trading congestion has caused liquidity-driven declines. On the other hand, a strong dollar and high oil prices have delayed rate cut expectations, suppressing gold prices. Recently, precious metals are under pressure mainly due to market concerns about the risks associated with high oil prices,” Ye Peipei emphasized.

Gold prices still have further upward momentum

“Although gold prices and gold stocks are temporarily suppressed by the above factors, this does not constitute a reversal of the bullish case for gold,” Wang Zheng judged.

In Wang’s view, the core drivers of gold price increases are ongoing central bank gold purchases, weakening US dollar credit, and the Fed’s rate cut cycle. These long- and medium-term factors remain intact.

Qu Ruiru also believes: “Recent sharp fluctuations in gold prices require time for the market to digest. However, if international conflicts persist, inflation and economic growth will face more significant shocks, and market demand for gold will increase.”

“Short-term, gold prices are likely to oscillate around $5,000, digesting positions. Once market sentiment and positions stabilize, there is still potential for further gains,” Wang Zheng said.

Regarding the outlook for gold stocks, Wang Zheng believes that because gold stocks are sensitive to gold prices and market sentiment, their declines after expectations cool will be more pronounced than gold prices, and corrections are within expected value reversion.

Ye Peipei also stated that with high oil prices and bleak economic prospects, the probability of stagflation has increased, and gold may present investment opportunities.

Looking at longer timeframes, Ye Peipei believes that before 2022, the biggest factor influencing gold prices was real interest rates—when US real interest rates fell, gold prices rose, and vice versa.

“In recent years, large-scale geopolitical conflicts and the continuous expansion of US fiscal deficits have led to declining confidence in the dollar. Gold, as a hedge against dollar credit risk, has been frequently used by institutions and central banks worldwide. This is reflected in the persistent central bank gold purchases since 2022,” Ye emphasized recent changes in gold trading.

Ye Peipei noted that if we simply use the real interest rate model to explain gold prices, it has already become invalid—unable to account for the high annual gains over the past four or five years. Behind this is the continuous buying by new bullish investors.

She also observed that by 2025, there will be another change: global gold ETF net outflows from 2022–2024 have shifted to net inflows.

“This indicates that not only central banks but also institutional and individual investors are entering the gold market. This reflects a growing recognition of gold’s role in hedging against dollar credit risk, with more investors actively reallocating assets. Therefore, the fundamental driver remains the change in dollar credit. If the weak dollar cycle continues, the gold bull market is unlikely to end,” Ye predicted.

Based on this assessment, Wang Zheng further analyzed different gold investment products.

He believes that gold ETFs and physical gold are suitable as asset hedges, resilient to short-term fluctuations, and can be accumulated gradually during dips. However, it’s important to note that intraday gold ETF trading has limited hours, leading to lower daily volatility, and overnight gaps are common. Physical gold is also limited by storage costs and liquidity challenges, so investors should carefully evaluate the necessity of holding physical gold directly.

Additionally, Wang Zheng warned that gold stocks and gold stock ETFs are more volatile and have larger drawdowns, as they are equity assets rather than pure gold substitutes. They should not be blindly bottom-fished; instead, investors should wait for gold price expectations to stabilize before taking a long position, with strict risk controls on positions and volatility.

(Edited by Xia Xin, reviewed by He Shasha, proofread by Zhai Jun)