Gold is approaching a bear market, and the bargain hunters have arrived!

After experiencing the largest drop in several years, bargain hunters have started to enter the gold market at low levels, temporarily saving face for this three-year bull market. The accumulated drop in the price of gold this month has reached 15%, with the decline from the peak in January's closing reaching 19% at one point, approaching the 20% caution line that usually signals the start of a bear market. However, there was a turnaround on Friday when investors re-entered the market, causing the price of gold to rebound by about 3%, and market sentiment to improve. Many market participants insist that the structural logic supporting gold has not changed. George Efstathopoulos, a fund manager at Fidelity International, said that the pullback was a "buying opportunity," as "inflation risks, fiscal pressures, and bond credibility issues are still long-term structural tailwinds for gold." Max Layton, the global head of commodities research at Citigroup, also stated on Bloomberg TV that once speculative positions are cleared, the bank will be "actively bullish on gold," and is "confident that the price of gold will be higher than the current level in a year." Reasons for the sell-off: From stock-bond linkage to central bank selling The root cause of this round of gold price decline lies in the accumulation of multiple pressures. The Iran war triggered a comprehensive sell-off in stock, bond, and currency markets, forcing investors to liquidate gold to make up for losses in other assets. At the same time, the conflict has driven oil prices up, pushing up bond yields and reducing the attractiveness of this non-interest-bearing asset; the sharp rise in the US dollar has also put pressure on investors purchasing gold with non-US currencies. Central banks have also shown signs of loosening. Within two weeks of the outbreak of the Iran war, Turkey sold and swapped more than $8 billion worth of gold to protect the lira exchange rate. This move also hurt market sentiment, as central banks have been core buyers of gold throughout the bull market cycle. Daniel Ghali, a commodity strategist at TD Securities, believes that at present, the overall trend is more likely to be a gradual slowdown in central banks' accumulation of gold, rather than a complete shift to net selling. ETF hemorrhage: Outflows this month may reach the highest level since 2022 During this decline, gold ETFs have become a concentrated source of selling pressure. Gold ETFs are favored by both retail and institutional investors. According to Bloomberg data, in the past 14 months, gold ETFs have only had one month of net outflows, and the continuous inflow of metal has provided significant support for a 70% increase in gold during the same period. However, this month saw a rapid turnaround in ETF fund flows, which are expected to record the largest net outflow in a single month since 2022, wiping out all inflows so far this year. ETF investors are particularly sensitive to changes in interest rates, and the current environment of high interest rates is one of the main suppressive factors. Hedge funds also joined the selling camp last week, reducing net long positions in gold to the lowest level since October last year. However, Robert Minter, director of ETF investment strategy at Aberdeen Investments, pointed out that stock market declines usually only cause minor pullbacks in the price of gold. Is the bull market logic still there? Narrative temporarily put on hold This bull market began in early 2023, with gold accumulating nearly 150% in returns. It started with central banks accelerating their purchases of gold after Russia's foreign exchange reserves were frozen, followed by hedge funds, and eventually leading to a wave of retail investors. The core narrative supporting the rise in gold in 2025 is the so-called "currency devaluation trade" high-debt countries such as Japan, France, and the United States lack the will for fiscal consolidation after the epidemic, and currency devaluation and inflation will be the only way out, with precious metals being the direct beneficiaries. Robin Brooks, a former Brevan Howard and Goldman Sachs foreign exchange strategist and now a senior researcher at the Brookings Institution, admitted that he has become a "believer" in this logic and uses the historical correlation between gold and safe-haven currencies like the Swiss franc as evidence. However, the outbreak of the Iran war has temporarily shifted market attention away from debt and fiscal deficit issues. John Reade, Chief Strategist at the World Gold Council, stated: "People are taking profits because the narrative for gold in 2025 has been temporarily put on hold. But that doesn't mean that those long-term themes have disappeared, it's just that they're not the most pressing issues right now." This article is from "Wall Street News," written by Yang Chen, GMTEight editor: Chen Qiuda.