Safe-haven asset attributes fail? Gold sees largest weekly drop since 2011, narrowing annual gain to about 4%.

In the face of escalating conflicts in the Middle East, soaring energy prices, and a reversal in interest rate expectations, the gold market has experienced intense selling. On Friday, international gold prices continued to fall, recording the largest weekly drop since 2011. By the close on Friday, spot gold fell sharply by 3.43% to $4498.31 per ounce, a weekly decline of about 9.5%; spot silver saw a more significant decline, closing down by 6.89% at $67.801 per ounce, with a cumulative drop of over 14% for the week. The core driver of this decline in gold prices comes from the rapid changes in the macroeconomic environment. With the escalation of the conflict between the United States and Iran, energy prices have continued to rise, significantly increasing market concerns about a rebound in inflation. At the same time, the strength of the US dollar and US Treasury yields has weakened the attractiveness of gold as an interest-free asset. Changes in market expectations are particularly crucial. Previously dominant rate cut expectations have quickly dissipated, with traders beginning to bet that the Federal Reserve may raise rates later this year, with the probability rising to around 50%. Expectations of rising interest rates typically exert pressure on gold, which is also one of the important reasons for the current gold price correction. The evolution of geopolitical risks similarly has a complex impact on market sentiment. Although conflicts should increase demand for safe havens, the market is more concerned about the impact of energy supply disruptions on inflation and policy pathways. As tensions in the Strait of Hormuz escalate, and news of possible US military deployments emerges, investor risk preferences decrease, and funds flow towards high liquidity assets like the US dollar. From a market structure perspective, this round of decline is also influenced by technical and fund factors. Previously, gold prices were close to historical highs, attracting a large amount of long position funds, putting pressure on the market for a correction. When prices begin to fall, a large number of stop-loss orders are triggered, accelerating the selling. Additionally, the liquidity demand prompted by declines in the stock and bond markets also prompts investors to sell gold to make up for losses in other assets. In addition, outflows from ETFs and a slowdown in central bank gold purchases also weigh on market sentiment. Data shows that gold ETFs have seen funds outflows for the third consecutive week, with total holdings reduced by over 60 tons, indicating a clear sign of short-term capital flight. Although under obvious short-term pressure, looking at the performance for the entire year, gold still maintains an upward trend, with a year-to-date increase of about 4%. Analysts point out that the current correction in gold prices is more of a temporary adjustment in the face of drastic changes in the macroeconomic environment. Against the backdrop of lingering inflation risks, expanding fiscal deficits, and ongoing geopolitical uncertainties, the long-term rationale for gold allocation has not fundamentally changed.