World gold prices continued to fluctuate at a low level in today's trading session as the USD maintained its strength and the market almost no longer expects the US Federal Reserve (Fed) to cut interest rates soon in the short term.
In the latest trading session, spot gold prices were at 4,494.11 USD/ounce, heading towards one of the strongest weekly declines in recent years. The main pressure came from the increase in US bond yields along with the rising USD, causing the precious metal to lose its competitive advantage in its role as a safe haven asset.
Current developments show that the gold market is strongly affected by a prolonged high interest rate environment. When borrowing costs remain high, investors tend to switch to profitable assets such as bonds, instead of holding gold – a type of asset that does not yield yields.
Another important factor is geopolitical tensions in the Middle East continuing to push energy prices up sharply. The disruption of transportation through the Strait of Hormuz – the transit route for about 20% of global oil supplies – has caused oil prices to exceed the 100 USD/barrel mark and increased concerns about inflation returning.
Usually, geopolitical instability will support gold as a safe haven asset. However, this time that positive impact is overwhelmed by expectations of tighter monetary policy, as the market believes that major central banks may have to maintain high interest rates for longer to control price pressure.
According to market experts, the USD is currently emerging as a major haven in the context of prolonged conflict, instead of gold as in previous cycles. This weakens the precious metal even as geopolitical risks increase.
In addition, investment capital also shows signs of withdrawing from the gold market in recent weeks. Gold ETF funds recorded a net selling trend as investors adjusted their portfolios in the face of strong fluctuations in the global financial market.
However, many large financial institutions still maintain a positive view of the long-term outlook for gold. Purchasing demand from central banks continues to remain high in the context of the trend of foreign exchange reserve diversification and increasing global public debt risks.
Analysts believe that in the short term, gold prices are likely to still be under pressure from the strength of the USD and the high interest rate environment. However, if geopolitical tensions persist or real interest rates begin to fall again, the precious metal may quickly regain its important defensive asset role in the global investment portfolio.
