Guotai Haitong: In the short term, gold may be under pressure due to the situation in Iran, but the logic for long-term gold price increases remains solid.

Guotai Haitong released a research report stating that the price of gold has been continuously weakening recently. On one hand, due to the high increase in gold prices in the previous period, it may face liquidity shocks from fund withdrawals when risk preferences decrease. On the other hand, the market expects that the tightening of monetary policy will drive up real interest rates, which is also negative for gold. The bank believes that in the short term, gold may still be under pressure due to the impact of the situation in Iran, but if long-term inflation expectations rise, it may return to a bullish environment for gold. The logic of gold rising in the medium to long term remains solid. Opportunities for allocation when gold is in a volatile downtrend can still be considered. Guotai Haitong's main points are as follows: Why did gold fall after geopolitical tensions escalated? First, gold was already favored by speculative funds in the previous period, and had already experienced a significant increase, exhibiting characteristics similar to risk assets. In the case of escalating geopolitical tensions and decreasing risk preferences, it is easily subject to liquidity shocks from fund withdrawals. Second, real interest rates have clearly risen under the influence of market expectations of tightening monetary policy, and gold, as a non-interest-bearing asset, will also be suppressed by the rise in real interest rates. Third, the safe-haven rally of gold had already fermented earlier in late February when tensions between the US and Iran escalated. When actual military conflicts occur, the demand to "sell facts" for profit-taking weakens the safe-haven attribute of gold. Breakdown of demand: Who is selling gold? The main downward pressure on this round of gold correction comes from the continuous outflow of funds from American investors. The enthusiasm of American markets for investing in gold is highly related to interest rate cut expectations. In the case of reversed monetary policy expectations and rising concerns about rate hikes, the pressure for a decline in gold prices during the American trading session is more apparent. Data from the World Gold Council also shows that since March, American gold ETFs have continued to see a trend of capital outflows. In contrast, gold prices in the Asian trading session remain firm, with a continuous inflow trend in Asian gold ETF funds. Future outlook: The foundation of a gold bull market remains. In the short term, if the conflict in Iran escalates further, there is a risk of energy prices rising again, which may amplify market concerns about inflation and major central banks tightening monetary policy, and gold may still be under pressure. However, if oil prices remain high for a long period, it may lead to a significant increase in inflation expectations. At that time, the Federal Reserve may find it difficult to quickly raise interest rates due to concerns about economic downturn risks, and real interest rates may fall in the context of rising inflation rates, which is positive for gold. In addition, if oil prices remain high for a long period, market focus may gradually shift from trading monetary policy tightening to "stagflation" (low growth and high inflation occurring concurrently), and gold is still expected to have room for an upward trend. In the long term, the logic of gold rising in the medium to long term remains solid. Opportunities for allocation during periods of volatile decline in gold can still be considered. Risk warning: Escalation of tensions between the US and Iran leading to a second surge in oil prices.