Gold is nearing bear market territory as more headwinds weigh on outlook

Gold is teetering dangerously close to bear market territory, with prices falling 19% from their January peak as the Strait of Hormuz chokepoint sparks an international energy crisis and triggers more stagflation fears, Bloomberg reports. It’s not just gold — bonds, another typical hedge, have been caught in a rout since the start of the war, while BTC is at roughly half its pre-war peak.

Gold-backed exchange-traded funds are also slated for the largest outflow in nearly four years following an almost 14-month-long rally, with all inflows of this year already erased, the business information service reported elsewhere.

Still, some are buying the dip: Gold prices ticked up 3% higher by market close on Friday after banks and money managers stepped in. Persistently high inflation and fiscal tightening are among key factors that continue to make gold attractive, Fidelity International’s George Efstathopoulos told the business information service.

But other headwinds could keep pressuring prices: Central banks could also start offloading gold holdings to prop up currencies, with Turkey already starting to sell and swap over USD 8 bn worth of gold reserves to the same end. Energy import-dependent countries are among those that have accumulated gold holdings recently, and they might look to sell them off in an environment of sustained high oil prices to shore up funds.

However, for now, a slowdown in accumulating reserves rather than a full-blown selloff is more likely, TD Securities’ Daniel Ghali said. Citigroup’s Max Layton expects gold to be higher within a year following a temporary shakedown.

MARKETS THIS MORNING-

Asia-Pacific markets were down sharply in early trading this morning as the regional war shows no signs of slowing down. Japan’s Nikkei was down over 4.6%, and South Korea’s Kospi was down 3.8%. Over on Wall Street, equity futures are in the red as investors await the March job report out at the end of the week.

The values in the table above are listed according to the market position as of 3:30pm IST / 2pm GST.