Gold’s Bull Market Has Ended and Now All Eyes Are on Bears

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Since the outbreak of the war in Iran, a wave of selling by ETF investors has weighed heavily on prices, helping to fuel the biggest monthly slump in nearly two decades over June.

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While gold typically fares well during periods of geopolitical turbulence, the surge in oil prices caused by the conflict has been of greater concern, with the withdrawals from ETFs accelerating as investors braced for rate hikes that would dent gold’s appeal relative to yield-bearing assets like Treasuries.

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ETF investors tend to be particularly sensitive to shifts in borrowing costs, and they’ve become the “marginal pricing power in gold” as other sources of demand have gone quiet, analysts at JPMorgan said in a note.

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The bank now sees about 50 tons of outflows from global gold ETFs this year, a stark reduction from the roughly 400 tons of inflows it had expected in prior forecasts. While it retains a bullish long-term outlook, analysts led by Greg Shearer say “the macro/rates setup will likely continue to cap gold in a lower range over the coming quarters.”

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Central Banks

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Central-bank demand was a key driver of gold’s years-long rally, but in the early days of the Iran war, sentiment in the gold market took a hit as it emerged that central banks including Turkey, Russia and Azerbaijan had offloaded metal.

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That forced investors to confront the prospect of a broader wave of central bank selling. However, recent industry estimates show that central banks as a whole actually upped their pace of buying in the first quarter. Survey data indicate they intend to buy more. 

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The People’s Bank of China in particular has continued buying throughout the selloff. The central bank, one of the largest sovereign buyers, has bought gold for 20 consecutive months, with disclosed acquisitions reaching the fastest pace since 2023 in June.

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“I generally see consistency in how central banks are thinking about gold reserves,” said Chris Louney, commodities strategist with Royal Bank of Canada. “If you’re trying to de-dollarize and diversify, gold stands out as that long term reserve asset that’s already a part of the global monetary system.”

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Wounded Bulls

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Buying gold has been one of the consensus trades on Wall Street for years, but several banks have cut back their gold forecasts in recent weeks, including UBS Group AG, Goldman Sachs Group Inc and Deutsche Bank AG. 

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Still, analysts are broadly sticking with the view that gold’s longer-term bull case remains intact, even as few are rushing to call the bottom. The market has moved from “euphoria to reckoning”, said Nicky Shiels, head of metals strategy at MKS Pamp SA. The next leg higher would likely require the dollar’s recent rally to fade and structural themes like currency debasement to reassert themselves, she said.

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After its worst month in nearly two decades, gold has found its feet above $4,000 an ounce over the past week as investors dialed back their bets on higher rates and a stronger dollar.

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Some investors, like Alexandre Carrier at DNCA Invest Strategic Resource Fund, have been underweight on precious metals relative to other asset classes, but he’s planning to buy following the slump in prices.  

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“With more clarity on rates and when the US dollar stops strengthening, we will probably reinforce our positions,” he said.

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—With assistance from Preeti Soni and Yvonne Yue Li.

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