File Photo/NBD

On Friday, April 12th, the U.S. stock market experienced a significant shakeup, with all three major indices falling and the Dow Jones dropping nearly 500 points. Precious metals such as gold, which had been surging, were not spared and experienced a “dive” in prices after reaching historical highs, marking a truly “crazy 24 hours.”

By the end of the day, both COMEX gold futures and London spot gold had fallen about $100 from their daily highs, a retreat of nearly 4%. Spot silver fell nearly $2 from its daily high, a retreat of about 6%.

Behind the shock were ongoing concerns about U.S. inflation and geopolitical uncertainty, which deeply affected investor sentiment. According to CCTV News, U.S. President Biden stated on April 12th that he did not want to disclose security information, but he expected Iran to “soon” attack Israel. Biden also warned Iran not to do so, stating that the U.S. would help Israel defend itself and that Iran would not succeed.

Zhan Dapeng, director of non-ferrous research at Everbright Futures, said in an interview with NBD that the recent historical highs in gold are related to its financial properties. Firstly, the Federal Reserve’s monetary policy has gradually shifted since the beginning of this year, and the market expects this to be the start of another round of monetary easing. The expectation of a decline in U.S. real interest rates is just a prelude to the rise in gold. Secondly, the U.S. warned Iran to retaliate against Israel, and the conflict in Gaza has a risk of further spreading. The complex and changing geopolitical environment in recent years has also boosted overseas investors’ bullishness on gold.

According to a CNN report, gold is considered a highly elastic investment. When the Federal Reserve cuts interest rates, gold prices often rise because gold bars are more attractive than assets such as bonds. The report also stated that central banks, led by China, continue to buy gold, which is one of the driving forces behind the continued rise in gold. Central banks around the world view gold as a long-term store of value and the best hedge asset during periods of economic and international instability.

Despite experiencing significant fluctuations, data from this week and April show that precious metals, led by gold, are still on an upward trend. However, after witnessing the “rise, rise, rise”, investors are inevitably filled with questions: How long can this strong trend in gold continue, and is there still investment value?

In response to this, Wall Street institutions including UBS, Citigroup, and Bank of America have recently expressed their expectations. Among them, Bank of America analysts are the most optimistic, raising their gold target price for next year to $3000 per ounce.

With gold frequently setting historical highs, can investors still “get on board” at this time? Regarding the future trend of gold, Zhan Dapeng also expressed his own views to reporters. He said, “The recent gold market is insensitive to bearish news, and bullish news quickly rises. I think this is a sign of market overheating, and the risk of chasing highs is increasing.”

He believes that recent data and events indicate that gold prices are gradually overdrawing the expected interest rate cut trade. As the certainty of the delay in interest rate cuts increases, gold may still have a surge in the short term driven by market sentiment, but a pressured correction trend is inevitable in the medium term.

He pointed out that investors need to closely monitor two indicators in the future. One is the trend of risky assets in overseas financial markets such as U.S. stocks and Bitcoin. If overseas risky assets irrationally rise high, or drive market risk preference, optimistic sentiment may continue to boost the gold market. The second is the change in funds, especially the total gold positions and non-commercial long positions of the U.S. Commodity Futures Trading Commission (CFTC). The continuous rise in gold prices requires funds to drive. If funds and gold prices diverge, it is not conducive to the upward space of the later market.