The demand for gold from central banks is one of the important factors driving the strong increase of precious metals since the end of 2022. However, this trend may temporarily slow down in the near future as many countries prioritize resources for more essential needs in the context of prolonged conflict in the Middle East.
This change took place at a rather sensitive time for the gold market. Precious metal prices just recorded the strongest weekly decline since the 1980s, after a period of rapid increase previously that senior investment strategist Rob Haworth of U.S. Bank Wealth Management said was a sign of a speculative heat wave.
After setting a record high at the end of January, gold prices faced many difficulties in maintaining their upward momentum, despite geopolitical tensions continuing to rise - developments considered quite different from the traditional role of gold in many previous volatile periods.
According to Mr. Haworth, the change in the reaction of the gold market reflects the process of adjusting investment positions on a broader scale. In the recent period, cash flow tends to prioritize liquidity, in which the USD is chosen more than traditional defensive assets such as gold or government bonds.
Even the government bond market has not attracted strong cash flow as usual, as yields have risen to a high level in recent months. According to Mr. Haworth, in the current context, many traditional defensive assets are affected by changes in the real interest rate environment.
Along with that, speculative positions in the gold market are becoming a factor putting pressure in the short term. Mr. Haworth believes that the 4,500 USD/ounce zone is an important psychological threshold and gold prices may continue to be under pressure if investors are forced to narrow their positions in the context of strong portfolio fluctuations.
According to him, many investors once chose to maintain positions in the early stages of the year with the expectation that the market would stabilize again, but currently a part of this capital flow is under adjustment pressure.
Not only speculative investors, central banks may not soon return to the market on a larger scale than in the previous period. Mr. Haworth said that many countries that have actively increased gold reserves are also energy importers, so financial resources can now be prioritized for more essential needs.
According to him, part of the previous capital could be used to increase gold reserves, which are currently being adjusted to goals of ensuring economic stability and maintaining the operation of key sectors.
This partly explains why gold prices have not reacted positively to recent geopolitical developments. In the current environment, the need to hold highly liquid assets is prioritized over increasing gold accumulation.
Mr. Haworth believes that in the medium term, the diễn biến of the gold market will depend significantly on the duration of the conflict and the progress of global energy transportation activities. If the situation continues in the next few weeks, businesses and consumers may start adjusting operating plans, thereby affecting the capital flow structure in the financial market.
In that context, gold prices may enter a stage of accumulation and adjustment as speculative factors are gradually absorbed and market conditions stabilize again.
Mr. Haworth also said that central banks' gold buying activity may recover in the near future, but it is likely to become clearer only when the energy market stabilizes and geopolitical factors cool down.
According to him, the current changes reflect an adjustment in the timing of resource allocation rather than a change in long-term views on the role of gold in national reserves.
