Gold Struggles to Maintain 3000 Point Breakthrough Amid Increasing Short-term Adjustment Risks
Last week, the international gold market reached a new historical high, breaking through the 3000-point barrier. Although it could not hold this level, the breakthrough opened up further potential for market gains. The main factors driving gold prices higher include the negative impact of US tariff policies on global trade, increased expectations of a Federal Reserve rate cut, and ongoing geopolitical tensions. However, with market sentiment partially released, gold faces certain short-term adjustment risks.
Geopolitical Tensions Drive Safe Haven Demand
Safe haven sentiment has been a key driver of recent gold price increases. Over the weekend, US President Trump announced a large-scale military operation against Yemen's Houthi forces, stating that the attack could last several days or weeks. So far, airstrikes have resulted in approximately 130 casualties. The Houthi forces subsequently vowed to escalate their resistance, despite having previously paused attacks on Red Sea vessels. The US military action could reignite conflict, raising shipping safety risks, and potentially increasing the volatility of the European shipping line this week.
Furthermore, there are no signs of easing in the Russia-Ukraine conflict. Russian President Putin and a US envoy held lengthy talks concerning a ceasefire, but achieved no substantial consensus. Russia has recently intensified its offensive against Ukrainian forces in the Kursk region, while Western countries are discussing the possibility of increasing economic sanctions against Russia. The market had hoped for sanctions relief, but if the West intensifies sanctions, international oil prices may receive short-term support, thereby enhancing gold's appeal as a safe haven asset.
Trade Frictions and Economic Uncertainty
Trade tensions between the United States and Canada also add uncertainty to the market. Canada’s new Prime Minister announced plans to continue imposing retaliatory tariffs on US products and to reevaluate previous fighter jet purchase plans. Tesla CEO Elon Musk has publicly criticized the US tariff policy, arguing that it harms American businesses. Meanwhile, the US consumer confidence index has fallen to its lowest level in nearly 27 months, with both one-year and five-year inflation expectations remaining high. This indicates increased economic uncertainty in the US, which might lead the Federal Reserve to adopt a cautious stance, thereby strengthening market expectations for future rate cuts and supporting gold prices.
Central Banks Increase Gold Holdings, but Market Faces Adjustment After Sentiment Release
Global central banks continue to increase their gold reserves, providing support for gold prices. For example, Iran has converted 20% of its foreign exchange reserves into gold, demonstrating confidence in gold amid the current complex global economic environment. However, despite breaking through the 3000-point barrier, caution is advised for those looking to buy at high levels in the short term.
The latest US Commodity Futures Trading Commission (CFTC) data shows that net long positions held by speculators decreased last week, and the open interest in leading gold futures contracts decreased by about 117,000 lots compared to a month ago. From the trading data, since last Tuesday, active gold buying was lower than active selling for three consecutive days, indicating that after market sentiment release, gold prices may face short-term correction risks.
Short-term Fluctuations Persist, Caution Advised in Buying at High Levels
In conclusion, the recent rise in gold prices has been primarily driven by safe haven demand, Federal Reserve rate cut expectations, and global central bank purchases. However, following a release of market sentiment, gold still faces adjustment risks. Investors should closely watch geopolitical developments, central bank policies, and changes in market liquidity. While safe haven demand supports rising gold prices, risk control is crucial, and investors should proceed cautiously in buying at high levels.
