Central Bank Sales Clash with Bullish Forecasts
Gold’s rally reversed after Trump’s Iran comments, highlighting volatility from geopolitics, dollar strength, and unprecedented central bank selling, despite bullish bank forecasts.
Gold’s recent price action presents a stark study in volatility driven by geopolitical rhetoric. A four-day recovery rally was abruptly erased following a Thursday primetime address by former President Donald Trump. In that speech, he signaled the potential for more aggressive military strikes against Iran over the subsequent two to three weeks, with no mention of a ceasefire. This declaration sent the precious metal tumbling by as much as 2.3% to approximately $4,691 per ounce, completely reversing its gains from earlier in the day.
This sharp pullback stands in contrast to the surge seen just days prior. On Tuesday, gold had posted a 3.5% advance—its most significant single-day gain since late January—fueled by investor hopes for a diplomatic resolution to tensions in the Middle East.
A Chain Reaction of Liquidation and Currency Strength
The market’s response to the speech created a chain reaction across asset classes. While equities showed little movement, oil prices jumped and the US Dollar Index climbed 0.5%. For gold investors holding other currencies, a stronger dollar immediately raises the cost of entry, creating a classic headwind for the dollar-denominated asset.
Compounding this pressure is a trading pattern observed since the outbreak of war: investors are liquidating gold positions to cover losses incurred in other asset classes. Furthermore, the specter of rising energy prices potentially forcing central banks worldwide to reconsider interest rate hikes continues to weigh on the non-yielding metal.
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An Unusual Source of Structural Pressure
Adding a new, structural layer of pressure is an unexpected source: central banks. For the first time in over two decades, central banks have become net sellers of gold. This activity is not driven by portfolio rebalancing but by fiscal necessity.
Russia alone offloaded roughly 500,000 ounces in January and February, bringing its reserves to a four-year low. Meanwhile, the Turkish central bank sold and pledged approximately 60 tonnes of gold, valued at over $8 billion, in the two weeks following the war’s onset, primarily to defend the lira. Analysts at Natixis identify a clear link: central banks are liquidating gold reserves to finance emergency energy purchases and buffer their currencies from the shock of rising oil prices.
Bullish Targets Meet a Turbulent Present
Despite these significant headwinds, major financial institutions are maintaining strikingly bullish year-end price targets. Goldman Sachs reaffirmed its $5,400 per ounce forecast in late March. The bank’s outlook rests on expectations of continued central bank purchases averaging 60 tonnes per month and two anticipated interest rate cuts from the US Federal Reserve.
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Wells Fargo holds an even more optimistic view, targeting a range of $6,100 to $6,300. This represents an increase of approximately 35% from its previous forecast.
The realism of these ambitious targets may hinge on upcoming economic data. The US employment figures scheduled for release on Friday are expected to provide critical clues regarding the Federal Reserve’s actual room for monetary easing. This data will likely recalibrate a central driver for gold’s future trajectory: the path of US interest rates.
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