The gold market has recently been impacted by multiple factors. Despite a decrease in geopolitical risk-aversion demand, expectations of Federal Reserve rate cuts, a weakening dollar, and the global trend towards de-dollarization continue to provide long-term support for gold prices.
Cooling Geopolitical Risk Aversion Reduces Short-term Gold Support
Recently, the U.S. agreed to resume military aid and intelligence sharing with Ukraine, and Kyiv accepted a 30-day ceasefire proposal from the U.S., leading to a marginal decrease in geopolitical risks. Meanwhile, President Trump's inconsistent policy on Canadian steel and aluminum tariffs—first announcing a doubling and then withdrawing the threat—increased market uncertainty.
As the Russia-Ukraine situation eases, the short-term safe-haven appeal of gold may weaken. However, global market risk sentiment is still not fully stable, and the recent sharp corrections in the U.S. stock market mean that safe-haven demand persists, with some funds continuing to flow into the gold market.
Rising Expectations of Fed Rate Cuts and a Weaker Dollar Support Gold Prices
February's U.S. CPI data fell short of market expectations, indicating:
- February CPI YoY recorded at 2.8%, the lowest since November last year;
- Core CPI YoY recorded at 3.1%, the lowest since April 2021;
- February Core CPI MoM was only 0.2%, the lowest since December last year.
The trend of slowing inflation has increased market bets on at least two rate cuts by the Fed within the year. The Fed will hold a rate meeting next week, with the market widely expecting no change in rates this time, but expectations for future policy easing persist. Affected by the CPI data, the dollar index and U.S. Treasury yields declined, benefiting gold. At the same time, the VIX market volatility index rose sharply, further driving safe-haven funds to U.S. Treasuries and the gold market.
Strengthening Global De-dollarization Enhances Gold's Long-term Investment Value
In the long term, increasing U.S. government debt and rising dollar credit risk could undermine the dollar's role as a global reserve currency. Against this backdrop, global central banks and investors are increasing their gold holdings to hedge against potential dollar depreciation risks.
Moreover, as countries push for de-dollarization, gold's role as a reserve and trade asset is gaining favor with more nations. Several economies are increasing gold reserves and promoting bilateral local currency settlements to reduce reliance on the dollar, further reinforcing gold's long-term investment logic.
Looking Ahead, Gold Remains Poised for Growth
Despite the short-term reduction in geopolitical risk aversion demand, factors such as expectations of Fed rate cuts, increasing dollar credit risk, and concerns over inflation potential rebound, gold's medium to long-term upward trend remains solid. With growing uncertainty in global financial markets, gold will continue to be a crucial asset for risk aversion and inflation hedging.
