Geopolitical Tensions and Interest Rates Double Strike! Gold Price Rebounds After Sharp Short-term Decline, Institutions: Long-term Uptrend of Gold Remains Unchanged

Ask AI · Why does the Federal Reserve remain hawkish despite long-term bullish outlook on gold?

On the morning of March 19 Beijing time, the spot gold market experienced intense volatility. Gold prices once plunged, hitting a low of $4,803 per ounce, marking a new low for the month. Subsequently, gold prices rebounded slightly, recovering some losses. As of 11:55, it was quoted at $4,851.72 per ounce, up 0.79%.

Affected by the weakening of international gold prices, domestic pure gold jewelry prices also declined. For example, Chow Sang Sang gold jewelry was priced at 1,492 yuan per gram, down 55 yuan per gram from the previous day’s 1,547 yuan.

Geopolitical risks and Fed decision double-hit gold prices

From the news, tensions in the Middle East have escalated again. According to Xinhua News Agency on March 19, Iran’s Islamic Parliament Speaker Kalibaf stated on social media that enemy attacks on Iran’s infrastructure are “suicide,” and Iran has established a “tit-for-tat” principle, signaling a new phase of conflict has begun.

Meanwhile, on March 19, the Federal Reserve announced the conclusion of its two-day monetary policy meeting, maintaining the federal funds rate target range at 3.5% to 3.75%. This decision was in line with market expectations and marked the second consecutive pause in rate hikes this year. The Fed’s statement indicated that the impact of Middle East tensions on the U.S. economy remains uncertain, and economic outlook uncertainties remain high. Current indicators show steady economic expansion, with recent months seeing little change in unemployment rate, but job creation remains low, and inflation remains somewhat elevated.

Donghai Futures noted that due to the Iranian Revolutionary Guard’s threats to attack multiple energy facilities in the Middle East, crude oil prices surged significantly, inflation expectations rose sharply; combined with the Fed’s hawkish tone and a strengthening dollar index, these factors jointly suppressed precious metal prices.

Short-term suppression does not alter long-term upward logic; institutions see gold allocation opportunities still present

The trajectory of geopolitical conflicts remains uncertain, inflation expectations have risen sharply, and will the Fed cut interest rates again?

CITIC Securities believes that, although tensions in the Middle East may lead to higher oil prices and push oil prices upward, they also bring downward pressure on the economy. For the Fed, current decisions may still be to wait and see longer. The inflation increase caused by exogenous shocks during rate-cut cycles is relatively less transmitted to core inflation, making further rate hikes less likely in the Fed’s policy options. However, internal divisions within the Fed may increase, and rate cuts could be further delayed. Under the baseline scenario, the Fed may have room to cut rates again by 2026, mainly after the third quarter.

Looking ahead, Shenwan Hongyuan Futures believes that although inflation pressures have lowered expectations for Fed rate cuts in the short term, putting short-term pressure on precious metals, in the medium to long term, the price center of precious metals will continue to rise. Concerns about the sustainability of U.S. fiscal policy are intensifying, coupled with global political and economic restructuring, diversification of central bank reserve assets, and the ongoing de-dollarization process. Therefore, considering multiple factors such as geopolitical risks, inflation hedging demand, de-dollarization, and central bank gold purchases, the long-term upward trend of gold remains intact.

In terms of strategy, CITIC Securities’ latest research report states that after previous Middle East conflicts, the medium-term trend of gold prices still depends on the dollar’s credit and liquidity factors. Looking at this round of conflict, it is expected that the continuation of loose liquidity and weakening dollar credit will continue to boost gold prices. Historically, valuation or stock price percentile advantages will strengthen the upside potential of the gold sector. Currently, the PE valuation of leading companies has fallen to a historic low of 15-20x, and considering that recent stock and gold price peaks have been highly synchronized, there is optimism for new highs in gold prices driving new highs in stock prices.

(Note: The content of this article is for reference only and does not constitute investment advice. Investors operate at their own risk.)