The metal might be set for its worst quarter in almost a decade as the Middle-East war, Fed rate hike expectations, and the SpaceX IPO weigh on gold prices.
The price of gold sinked to a 6-month low last week as multiple factors including the Iran war, SpaceX IPO, and US interest rates built pressure on bullion.
Gold fell over 1% to ~$4022 per troy ounce last week, its lowest since November. The quarter performance may just be the worst in almost 10 years. The yellow metal has fallen more than 20 per cent since the beginning of the war in the Middle East, which has forced some central banks to sell gold to help defend their currencies. It has also triggered an exodus of the speculative investors who had driven a bullion-buying frenzy late last year and early this year.
“When things kicked off in Iran, people de-risked their portfolios,” said Peter Kinsella, head of investment services at UBP. “People are selling gold to fund other non-performing assets on a margin basis. Any de-risking move is going to result in sales of gold.”
In recent months, a number of central banks have been compelled to sell gold. In order to protect its currency, Turkey sold and exchanged $20 billion worth of gold. Russia also joined the selling spree to bolster its finances.
A significant hindrance to gold during the conflict has been an increase in US interest rate expectations, which has made Treasuries and other government bonds more attractive.
Traders have shifted their expectations from two or three quarter-point interest rate decreases by the end of the year to one quarter-point hike due to a spike in inflation caused by rising oil prices. The opportunity cost of storing gold, an incomeless asset, has increased as a result.
According to Tom Price, an analyst at Panmure Liberum, SpaceX’s massive IPO on Friday may cause gold prices to drop even more. Anthropic and OpenAI, two AI firms, are also preparing listings.
“It is a potential drag on gold, because investors are looking somewhere else to keep the party alive,” he said. “Gold is struggling at the moment, and they are looking at the next big thing. And SpaceX is the next big thing.”
Mohit Kumar, analyst at Jefferies, sees the upcoming mega IPOs “as a liquidity drain event in the near term”, which has weighed on prices for gold and crypto assets.
While the retail interest in gold and silver rallied the metals to a historic bull run doubling gold prices in 2 years, the same cohort seem to have shifted stances, with outflows from the gold-backed exchange-traded flows contributing to the sell-off.
As per the World Gold Council data, gold ETFs have seen net outflows of over 55 tonnes between March and May, a reversal from a 9-month inflow trend. Central banks throughout the world are still net buyers of gold, which surpassed US Treasuries to become the largest reserve asset by value at the end of last year, as per a recent ECB report.
