Roller coaster turns around again! Gold may suffer the longest continuous drop in history, and the situation in Iran has become a "magnet for liquidity"

As investors weigh conflicting statements from various parties in the Middle East situation, the gold price continues to decline. The delay of the US strike on Iran's energy infrastructure provided only a brief respite for this precious metal in its sharp decline during wartime. During volatile trading hours, gold prices fell by 1.8% at one point, after having risen by nearly 1% previously. Its trend roughly followed that of the stock market and showed an inverse relationship with oil prices. US President Trump announced a five-day delay in his earlier threats of striking Iran's power plants, stating that there was a "productive discussion" on Monday. However, an Iranian official ruled out the possibility of negotiations, and it is understood that US allies in the Gulf region may join the conflict. The conflict-induced high energy prices have increased inflation risks, prompting investors to sell relatively liquid and profitable gold positions and turn to other assets. Gold prices fell nearly 2% the previous trading day, marking the ninth consecutive day of decline; if it falls for a tenth consecutive day, it will set a record for the longest continuous decline in history. Despite Trump's announcement of a postponed strike, the outcome of any negotiations and the future passage of ships through the Strait of Hormuz remain uncertain. Even the destruction of existing energy infrastructure will take time to repair. This means that inflation threats still exist, and market expectations of interest rate hikes by the Federal Reserve and other central banks have not diminished, posing unfavorable factors for interest-free precious metals. Suki Cooper, head of commodities research at Standard Chartered, said, "The relative weakness shown by gold in this sell-off is more severe than usual." She added, "A drop in gold prices over four to six weeks following a period of extreme panic is not uncommon, as gold proves to be a liquid asset when needed in the market." A similar situation occurred after the Russia-Ukraine conflict at the beginning of 2022. At that time, safe-haven asset gold initially surged, then experienced months of decline as energy price shocks affected the market and intensified inflationary pressures. Peter Kinsella, Global Head of FX Strategy at Union Bancaire Privee UBP, said, "In major crises like these, you often see investors selling off previously heavily weighted and performing well assets to cover additional margin calls for underperforming assets like stocks, bonds, etc." He noted that gold had shown similar behavior during Global Financial Crisis in 2022 and 2008. "Short-term price movements are mainly about positions," he said, adding that long-term driving factors have not changed. While gold prices have fallen nearly 17% from the outbreak of hostilities at the end of February to Monday's close, previous gold prices had gone through a sustained rally supported by geopolitical and trade tensions as well as continuous central bank buying. Some nations that continue to increase their gold holdings are energy importers, so the increase in oil and gas import bills due to war means that dollar reserves available for purchasing gold decrease. At the time of writing, spot gold was down 1.07% at $4359.80 per ounce. Silver fell 2.4% to $67.49, and platinum and palladium also dropped. The Bloomberg Dollar Spot Index, which measures the dollar's value against a basket of currencies, rose by 0.24%, having fallen by 0.4% at the previous close.