Gold Drops for Six Days—What’s Next After Powell Fails to Halt Slide?

A uncommon and sudden drop in gold prices. The longest losing run since 2024 is six trading days. Gold prices fell 4% on March 18th to $4,805.58 per ounce, the lowest in a month and a half. The monthly trading range of $5,000 to $5,200 was broken in one day.

In early Asian trading on March 19, spot gold (XAUUSD) rose 0.6% to $4,847.85 per ounce. This comeback won't change gold's downward trend. Additionally, gold futures slid nearly 1% to $4,849.50, showing that buying power is insufficient to signal a bottom. Gold is under pressure.

Why did Powell's remarks fail to save gold prices?

Despite the market's expectations, Powell's comments and attitude at last night's Fed meeting were not hawkish. He promised no adjustment in interest rates while emphasizing policy flexibility and noting the Iran war's uncertain impact on inflation. Neutral language usually supports gold.

Gold prices reacted differently. Powell expressly stated that "rising energy prices will exacerbate inflation, and maintaining tight interest rates is crucial," even though he opposed a rate hike. Gold is more popular in low-interest-rate environments and does not generate demand, but Powell's words reduced market expectations for easing this year.

According to CME FedWatch, the market expects a rate drop until September. The dollar exchange rate and US Treasury yields climb on this timeframe, which matches February PPI data. Thus, a stronger dollar and rising real rates leave gold prices without technical support.

Cross-asset liquidation: This gold price drop is not just a case of safe-haven failure

"A cross-asset allocation adjustment appears. Oil prices are a reaction to supply risks, while gold prices may be the result of profit-taking, liquidation, risk selling, a stronger dollar, and higher real yields "ING commodity strategist Ewa Manthey described the multi-layered gold price decline.

An ignored dynamic is shown by this finding. Since the Iranian crisis, gold has gained a safe-haven premium. The cost of holding gold instantly increased when the Federal Reserve suggested that interest rate cuts were improbable and real rates continued to rise, prompting some institutional investors to sell at high levels where the safe-haven premium still existed. Profit-taking and allocation changes drove gold price declines.

Market discussion surrounds oil prices' influence in this process. Due to rising oil costs, inflation predictions should have bolstered gold demand as a hedge. However, the market's faster deduction is: growing oil price inflation makes it harder for central banks to loosen monetary policy, raising real rates and hurting gold. Given this logic, Middle East conflict-driven safe-haven buying has dropped.

Gold Falls Below $5,000: Technical Implications and Limitations

Psychologically, $5,000 gold is much beyond technical resistance. It's the bottom boundary of the key trading range during the previous month and a bull-bear battleground. A chain of technical stop-loss orders accelerates the decline when this level is broken.

Gold prices may bottom with technical support around $4,800 to $4,850, building on Asian stock market rebound, if two short-term questions are answered:

1. Will oil prices fall after Hormuz tensions ease?

2. Whether the next monthly inflation report will allow the market to adjust interest rate cut forecasts.

Gold prices are more likely to wait for confirmation than to bottom until these two queries are answered.

Has the safe-haven logic of gold been completely suppressed by the logic of inflation and interest rates?

Regarding the present and recent state of gold, there is now no agreement in the market.

The pessimistic stance is more persuasive in short-term trading. Three of the worst circumstances for gold are present at the same time: a stronger currency, rising real yields, and a postponed rate drop until September. The Fed's ability to change the course of policy is constrained by higher-than-expected PPI readings, which show more inflation than projected. Gold prices currently lack short-term fundamental momentum, and any technical recovery could be met with selling pressure once more.

A longer horizon forms the basis of the bullish argument. Stagflation, which is defined by high inflation and sluggish GDP, has traditionally produced one of the strongest macroeconomic conditions for gold.

The market's expectations for a Fed rate cut will be swiftly restored if new data reveals additional declining economic momentum. At that moment, purchasing demand in gold will start to build up at relatively low levels, which might lead to a more dramatic rebound than the present slide.

Furthermore, one of the main reasons for the current low price of gold is the persistent purchases made by central banks around the world during the previous two years. As a result, short-term changes in interest rates won't have an impact on the world's central banks' ongoing demand for gold, and it may be argued that the basic reasoning behind gold is unaltered.

How did other precious metals perform?

Following recent pressure, other precious metals also experienced a minor technical recovery on Thursday. Spot silver (XAGUSD) rose 0.9% to $76.0155 per ounce, and spot platinum (XPTUSD) rose 0.2% to $2,029.96.

There is some relevance in the fact that silver's 0.9% recovery was somewhat greater than gold's 0.6%. Due to its industrial characteristics, silver is more susceptible to expectations for global expansion. Its relative strength indicates that bearish predictions for industrial demand have not yet been fully priced in, even though the market is going through a short-term slump. Nevertheless, this signal is still only a marginal reference and is not enough to indicate a reversal in the price trend of gold.

The price of gold has dropped by almost 8%, from its previous peak of $5,200 to about $4,800. Whether this drop in gold prices is a short-term portfolio adjustment and liquidation or a structural disturbance of the medium-term positive trend is currently the most crucial question for investors with positions.

Two recent occurrences will offer crucial indicators of direction:

• Oil price movement:

If the situation in the Hormuz eases substantially and oil prices fall significantly from their high of $108, the cooling of inflation expectations will simultaneously reopen the window for interest rate cuts, potentially easing interest rate pressures on gold quickly.

• Next CPI and PPI data:

If inflation data continues to exceed targets due to the distortion caused by the energy effect, market confidence in the remaining room for interest rate cuts this year will waver, potentially weakening the rebound in gold prices again.

So far this year, gold has still benefited from a considerable cumulative increase as a buffer. However, moving upwards from the current level requires more than just a return of safe-haven demand; it requires a clear signal that the market can regain confidence that "the Fed's next step is still an interest rate cut." Until that signal appears, every technical rebound in gold prices needs to be carefully assessed to determine whether the selling pressure has truly been cleared.