The cannon fires and gold flows like water—is it not working this time? Latest Analysis

“Booms bring wealth.” Since the US-Iran conflict, this saying seems to have lost its effectiveness. The spot price of London gold has fallen nearly 10% since the conflict began, dropping to a low of $4,502 per ounce, with the $4,500 level once again at risk.

Institutions believe that, from current drivers, the core of gold’s trend lies in the upward movement of energy prices constraining interest rate expectations. As the Middle East conflict persists and crude oil prices remain high, market expectations for a decline in inflation have become more cautious, weakening the pricing of rate cuts, leading to a phase of dollar strengthening, which suppresses gold.

Looking ahead to 2026, institutions say that the US fiscal deficit remains high, and against the backdrop of a long-term de-dollarization trend (global central banks buying gold), gold prices still have long-term upside potential. However, compared to 2025, the marginal changes in the US interest rate cycle and increased trading forces in 2026 may boost gold volatility, requiring more tactical timing.

Gold Faces Continued Adjustment

Since the US-Iran conflict, gold has not continued its upward trend as market expectations suggested, but instead experienced a significant correction.

On March 18, London gold prices fell 3.86% to $4,813.53 per ounce, and on March 19, dropped sharply by 3.39% to $4,650.50 per ounce, with intraday lows around $4,500. Although there was a rebound on March 20, the monthly adjustment exceeded 10%.

Cinda Futures pointed out that, based on current drivers, the core of gold’s movement is energy prices rising and constraining interest rate expectations. As the Middle East conflict continues and oil prices stay high—Brent crude futures previously stabilized above $100—market concerns about inflation stickiness have increased. In this context, market expectations for inflation decline have become more cautious, weakening rate cut expectations, and pushing the dollar to strengthen temporarily, which suppresses gold.

Meanwhile, despite weaker employment data earlier, energy-driven inflation expectations are offsetting this bullish factor, making short-term gold prices somewhat bearish. On the policy front, markets generally expect the Federal Reserve to hold interest rates steady for the second consecutive meeting, but the key lies in forward guidance on the interest rate path, especially Powell’s assessment of inflation and geopolitical impacts, which will directly influence market expectations for future easing.

CITIC Construction Investment, through historical review, offers insights into the current market. In a recent report, CITIC Construction Investment (601066) noted that, contrary to intuition, geopolitical conflicts are not necessarily favorable catalysts for gold prices. Historical major conflicts related to the Middle East show that, one month before conflict erupts, gold prices tend to rise with an average increase of nearly 4%; however, three months after the conflict, gold price trends vary greatly, with no clear upward pattern, and the probability of decline within one month is higher, with an average downturn.

Examining the trend over periods, it’s clear that gold prices generally trend upward before conflicts, then enter a period of volatility afterward. Conflicts more closely related to the Middle East, such as the Iraq War, overseas wars, Iran-Iraq War, and Russia-Ukraine conflict, tend to see higher probabilities of gold price declines post-conflict, with the Iran-Iraq War seeing declines of up to 15%.

“After conflicts, overall market risk appetite drops sharply, and liquidity shocks may occur, leading to gold sell-offs; before conflicts, gold prices often rise, and positive effects materialize after the conflict,” CITIC Construction Investment explains.

Many Institutions Still Optimistic About Gold Prices

Although recent gold prices have been weak, many institutions remain optimistic about the future of gold and gold stocks.

Ruo Zhiheng, Chief Economist at Yuekai Securities, stated that, in the long term, supportive factors for gold prices remain. The recent sharp decline in gold is not a sign of a bull market ending but a deep correction during an upward trend. He analyzed from three perspectives:

First, global geopolitical risks are becoming normalized. The diplomatic policies of the Trump administration have increased conflict frequency and chain reactions, which will continue to weaken dollar credibility.

Second, non-US central banks remain eager to buy gold, likely pushing up the price center of gold. Under the new normal of geopolitical risks, increasing gold holdings has become an important choice for non-US central banks to hedge sanctions risks and enhance financial security. Emerging market central banks are especially active, with substantial room for reserve growth.

Third, if global economic risks shift from “inflation” to “stagnation,” gold prices could find support. High energy prices directly erode residents’ real consumption and may also force monetary tightening, suppressing demand and curbing inflation, potentially leading to economic slowdown or recession. In a “stagnation” environment, gold’s strategic value will be further highlighted.

Historically, during recessions, traditional assets like stocks and bonds often face profit declines and valuation compression, while gold tends to have a relative advantage.

Additionally, economic slowdown pressures will push central banks toward easing monetary policy. If the Fed adjusts its stance due to employment targets or recession risks, real interest rates are likely to decline, reducing the opportunity cost of holding gold and opening room for prices to rise.

“After each Middle East conflict, the medium-term trend of gold prices still depends on dollar credibility and liquidity factors,” CITIC Securities (600030) pointed out. Looking ahead, they expect the continuation of liquidity easing and weakening dollar credibility to further boost gold prices.

The firm also noted that valuation or stock price relative advantages historically strengthen the upside potential of the gold sector. Currently, leading companies’ P/E ratios have fallen to 15-20 times, near historical lows, and considering the high correlation between recent stock and gold prices, they are optimistic about new highs in gold prices driving stock price increases.