According to Kitco, although gold prices have recovered after a nearly 8% drop in just one night, this precious metal still risks continuing to decline as central banks - once a major buyer - are now forced to sell gold, according to a market expert.
In a report, Mr. Bernard Dahdah - a precious metal analyst at Natixis - warned that gold prices could fall to 4,000 USD/ounce due to increased global economic instability and concerns about inflation.
Latest update on Monday, Mr. Dahdah said that the recent gold sell-off shows that central banks selling is no longer a rumor. He believes that the possibility of global monetary policies shifting to a "hawkish" direction due to increased inflation - although disadvantageous to gold - does not fully explain the recent sharp decline.
“We are less likely to believe that fears of inflation or the central bank's policy change are the main reasons. If so, the USD index (DXY) and the yield of 10-year US government bonds had to fluctuate sharply at the same time. But in fact, this morning, neither of them fluctuated significantly,” he said.
“We believe that the main reason for this decrease is that some central banks are selling gold to protect the domestic currency and/or serve energy import demand.
When gold prices fell sharply last weekend and US bond yields increased in the last two sessions, the market may also witness larger than normal sell-offs from ETF funds secured by physical gold.
Mr. Dahdah also said that the two main factors that once boosted the unprecedented strong increase in gold last year have now reversed.
If our analysis is correct, gold prices may continue to be under downward pressure in the near future," he said.
“We do not think that the long-term trend of gold is in the low zone around 4,000 USD/ounce,” he emphasized. “If damage to energy infrastructure is controlled and oil prices quickly return to pre-conflict levels, central banks' gold buying demand may increase again. This could bring gold prices back to the orbit of maintaining above 5,000 USD/ounce.
