Galaxy Securities: International gold prices continue to fall, why are safe-haven assets "failing"?

Galaxy Securities released a research report stating that short-term pressure does not change long-term logic, and gold still depends on the rebalancing of interest rates and credit. In the current environment of high oil prices and high interest rates, short-term fluctuations in gold are inevitable. However, from a medium to long-term perspective, central bank gold purchases, reserve diversification, and geopolitical uncertainties still provide support. Overall, the current adjustment is more about a change in pace rather than a trend reversal. The consecutive decline in gold prices is not a failure of safe-haven but a shift in pricing logic from risk-driven to interest rate-driven. In recent times, the price of gold has fallen for eight consecutive trading days, with a single-week drop of over 10%, which seems unusual against the backdrop of escalating geopolitical conflicts. However, the fundamental issue is not the disappearance of safe-haven demand but a change in the variables that markets prioritize in pricing. In the past, conflict escalation typically corresponded to funds flowing into gold, but currently, the market first reacts to inflation and interest rate paths, causing a temporary divergence between gold and geopolitical risks. High oil prices push up inflation expectations, and rising real interest rates become the core factor suppressing gold. The conflict in the Middle East has pushed oil prices above $100 per barrel, which has adjusted market inflation expectations. In its March meeting, the Federal Reserve raised its 2026 PCE and core PCE to 2.7%, with the dot plot showing most officials supporting 0-1 interest rate cuts. Powell also clearly stated that they will not cut interest rates until inflation significantly falls. In this context, the expectation of rising real interest rates increases the opportunity cost of holding interest-free assets like gold, becoming a driving force in the current pullback. The strengthening of the dollar, coupled with rising interest rates, continues to exert sustained pressure on gold. With upward revisions in inflation expectations and policy tightening, the dollar has gained support, attracting funds back to dollar-denominated assets. As gold is priced in dollars, a stronger dollar directly suppresses the gold price. From an asset allocation perspective, under the combination of "rising interest rates + a stronger dollar," funds are more inclined to allocate to income-generating assets rather than holding gold, leading to a clear transmission chain in this current market scenario. Liquidity squeezes and profit-taking amplify volatility, and gold adjustments exhibit clear capital attributes. Against the backdrop of increased market volatility, some institutions passively reduce their holdings of liquid assets like gold to manage margin pressures and portfolio adjustments, making gold an important tool for realizing profits. Meanwhile, gold prices have risen from $2000 per ounce to nearly $5000 per ounce in the past two years, with a significant increase and high crowding, making geopolitical conflicts instead trigger profit-taking by long positions, resulting in amplified price adjustments. Central bank gold purchases still provide long-term support, but it is difficult to hedge against short-term interest rate and capital shocks. Global central bank net purchases of gold are still above 300 tons in 2025, providing structural support for the gold price. However, this demand is part of long-term allocation, with a slow pace that is difficult to withstand the impact of short-term capital inflows. Additionally, the slowing pace of gold purchases at the beginning of 2026, coupled with a lack of stable buying pressure in the short term, makes prices more susceptible to changes in macro expectations. From a broader perspective, the pricing of gold is transitioning from the "credit logic" phase back to the "interest rate logic" stage. In the past, gold's rise was more driven by de-dollarization and geopolitical risks, but in the current stage, the market is returning to the pricing chain of "inflation - interest rates - dollar." In this framework, as long as real interest rates rise and the dollar strengthens, gold is difficult to maintain strength, even as risks continue to rise.