Gold bear market deepens as rate fears grip bullion

GOLD has entered bear market territory, falling more than 20% from its all-time high near $5,600 an ounce reached in late January, as rising interest rate expectations and a strengthening dollar weigh heavily on bullion, said Bloomberg News on Wednesday.

The metal posted double-digit gains in each of the past three years, more than doubling in price as central banks, money managers and retail investors accumulated positions. That rally has now reversed sharply, with prices down roughly 29% from their January peak.

The primary catalyst has been a repricing of rate expectations following hawkish signals from new Federal Reserve chair Kevin Warsh, who indicated a tough stance on inflation at his first rate-setting meeting said the newswire.

Higher energy prices stemming from the US-Iran conflict have added to inflationary pressures, making non-yielding bullion less competitive against interest-bearing assets such as Treasuries. “The primary driver behind gold’s recent decline has been a significant repricing of interest-rate expectations,” said Ewa Manthey, commodities strategist at ING.

Goldman Sachs analysts noted that Warsh’s messaging has also helped reassure markets about central bank independence, unwinding the so-called debasement trade — a strategy favouring gold and Bitcoin over currencies exposed to fiscal and monetary excess.

Several major banks have trimmed forecasts.

Goldman Sachs reduced its year-end target by $500 to $4,900 an ounce, while Deutsche Bank cut its fourth-quarter estimate by 17%. ETF outflows and weak Chinese import demand have removed two traditional supports for prices.

Central bank buying remains the key counterweight, however. Institutions added to reserves at the fastest pace in over a year in the first quarter, and survey data suggests further purchases ahead.

“The one pillar which remains strong is central bank demand, and we expect this to be the case for some time to come,” Deutsche Bank said.