Gold, long treated as a safe-haven asset, failed to gain ground even as equity markets wobbled. Spot prices fell below $4,000 an ounce for the first time in about three months, leaving the metal roughly 29% below its January high.
International spot gold slipped to as low as $3,986.50 an ounce on the 23rd, breaking below the $4,000 level for the first time since July, according to the Financial Times and Reuters. The drop followed a decline of more than 2% the previous day and brought the week's loss to more than 3%.
Domestic prices fell sharply as well. At the Korea Gold Exchange, one don (3.75 grams) of pure gold was quoted at 751,000 won to buy and 642,000 won to sell on the 23rd, down 1.73% and 1.56% respectively from the previous day. At the Korea Standard Gold Exchange, the January peak was 1.12 million won per don. Prices vary by exchange, making direct comparisons difficult, but investors who bought above the 1 million won level are clearly sitting on much larger paper losses. In the Korea Exchange (KRX) gold market, one gram of pure gold fell more than 36%, from a peak of 269,810 won on Jan. 29 to 171,270 won on the morning of the 23rd.
Gold Falls Even as Treasury Yields Plunge, a First Since December 2008
The decline is all the more unusual because it came on a day when demand for safe assets strengthened. On the 22nd, the Nasdaq fell 2.6% on concerns over Meta's artificial intelligence spending, and the yield on the 10-year U.S. Treasury note dropped 19 basis points in a single day. Money flowed into safe assets, yet gold weakened.
Germany's Berenberg called the move a notable deviation, saying it was the first time since December 2008, in the midst of the global financial crisis, that gold had fallen alongside such a steep drop in Treasury yields. Justin Lin, a strategist at Global X, said investors sell gold to meet margin calls when risk assets tumble, describing the move as a liquidity-driven sell-off.
The immediate triggers were oil prices and interest rates. Military tension between the United States and Iran sent Brent crude up 3.1% and West Texas Intermediate up 3.8% on the 23rd, stoking inflation concerns and strengthening expectations that the Federal Reserve could raise rates again. Gold pays no interest, so its relative appeal fades as rates rise.
Berenberg said speculative money piled into gold as it pushed past $5,400 in January, and the metal plunged more than 20% as that money exited. Analysts also warned that a close below $4,000 could trigger further selling by gold exchange-traded funds.
Bargain Hunting and Central Bank Buying Offer Support, With Rates and Oil the Wild Cards
There are forces cushioning the market as well. Gold bar sales at South Korea's five largest banks reached 29.1 billion won in September, about triple the pre-pandemic monthly average of 8.5 billion won. Central banks bought an average of 91 tons of gold a month over the past three months, more than five times the pre-2022 monthly average of 17 tons, according to Goldman Sachs, which is maintaining its end-2027 gold price target of $5,400 an ounce.
Still, the market view is that a rebound will be difficult if U.S. interest rates stay elevated and rising oil prices reignite inflation.
With losses from the peak widening, some argue gold is no longer an asset that holds up in a crisis. Investors who paid more than 1 million won per don are left riding out the volatility until rates and oil prices settle on a direction.