Kuala lumpur: Gold prices may experience a temporary decline as investors decide to liquidate assets in favor of US dollar funding, mirroring patterns observed during the global financial crisis and the early stages of the COVID-19 pandemic, an analyst has indicated.
According to BERNAMA News Agency, OCBC Group Research FX strategist Christopher Wong noted in a research note that although gold is traditionally seen as a safe-haven asset, it does not always see a price increase during times of intense market stress.
Wong explained that during severe financial or geopolitical shocks, investors might sell gold to raise liquidity, especially when immediate cash access is needed for margin calls and portfolio deleveraging. This trend was evident during significant crisis events, such as the 2008 financial crisis, when gold was initially sold off due to cash demands and forced liquidation of profitable trades across various asset classes.
The early phase of the COVID-19 pandemic in 2020 also saw gold prices decline as investors sought liquidity and deleveraged their portfolios. Despite this, elevated geopolitical risks, policy uncertainty, and concerns about global growth have historically bolstered demand for gold as a defensive asset.
Furthermore, ongoing central bank diversification into gold and a broader base of investor participation are anticipated to provide structural support for the metal. However, the situation can be more challenging for gold in the near term. A sharp rise in energy prices may reignite inflationary pressures. Should inflation persist, monetary easing could be delayed or reversed, resulting in nominal yields and real interest rates remaining elevated. This would tighten global financial conditions, creating an unfavorable environment for gold bulls.
Wong highlighted that the current environment has created tension for gold. While the demand for safe-haven assets is still present, rising real yields and stronger demand for dollar liquidity could limit gold's upside potential in the short term. This dynamic also explains why gold has largely traded within a range following the price decline at the onset of the US-Israel-Iran conflict.