【MACRo Insight】The changing gold market: an in-depth analysis of the price plunge and the bull marke

The gold market has experienced dramatic fluctuations recently, and on Wednesday it suffered its largest one-day drop in nearly four years, sparking widespread doubts about whether its strong gains can continue. After this dramatic fluctuation, the future direction of the gold market has become unclear, and investors and analysts have conducted in-depth discussions on its trends and prospects.

Reasons for the plunge in gold prices

The plunge in gold prices can be attributed to several key factors. The first is the change in the context of the global trade war. The Trump administration seems to have taken a more conciliatory approach to trade policy, which has caused gold to lose an important support factor. According to the Wall Street Journal, the White House is considering a significant reduction in tariffs on Chinese imports, and this news directly hit the sentiment of the gold market.

Trump's recent statements show that his attitude towards Powell has softened, saying that he has no intention of firing Powell and hopes that he will be more active in lowering interest rates. This easing signal has reduced market concerns about the risk of the Fed's independence, thereby reducing the attractiveness of gold as a safe-haven asset.

After the heat of the “quarrel” between Trump and Powell subsided, the US dollar seemed to have found support again. If the US dollar stabilizes, the demand for panic-driven safe-haven assets will decrease accordingly, which further exacerbates the decline in gold prices.

Is the gold bull market over？

Although gold prices have experienced a sharp correction in the short term, many analysts do not believe that this marks the end of the gold bull market. Michael Armbruster pointed out that the current gold price trend may just be a normal correction in the bull market, the trend is still upward, and in the long run, the price still has the potential to rise further.

Jonathan Klinsky pointed out from a technical analysis perspective that gold prices are 27% above their 200-day moving average, a level that has only appeared a few times in the past 30 years and usually indicates that assets are entering the “burst” stage.

Jim Wyckoff also believes that the gold market is “close to a climax, but not necessarily from a price perspective,” and prices may still rise sharply in the short term. He pointed out that the recent sharp fluctuations in gold prices indicate that this bull market is running out of time, but it does not mean that the final peak of prices has arrived.

Gold ETF Market Dynamics

Chris Luccas, an ETF expert at Goldman Sachs, pointed out that in the past few weeks, the market's demand for gold spot exposure (such as GLD) has increased significantly, mainly due to the outstanding performance of gold as a tool to hedge against uncertainty. However, as the S&P 500 recorded its third strongest performance in two years, the gold market suddenly released huge pressure, and GLD became the third most traded ETF in the market, and the transaction amount was the third highest since its establishment in 2004.

On Wednesday, GLD saw an outflow of $1.3 billion, the largest single-day outflow since the Swiss National Bank's strong intervention in 2011. This dramatic flow of funds reflects the extreme changes in market sentiment, and also shows that the high valuation of gold ETFs is mainly driven by the rise in gold prices itself, rather than the result of continued market subscriptions.

Nevertheless, physical buying from China has shown strong resilience. After Wednesday's plunge, physical gold demand in the Chinese market emerged quickly, pulling gold prices up nearly $100 from overnight lows, indicating that physical gold demand remains strong and may provide support for gold prices.

Future Outlook for the Gold Market

In the short term, gold prices may continue to be affected by factors such as the trend of the US dollar, the trade situation and the Fed's policy. However, in the long term, the fundamentals of gold are still supported by factors such as geopolitical conflicts, high inflation and market uncertainty.

Jim Wyckoff and other analysts believe that the current pullback may provide an attractive entry point for long-term investors. Strong demand for physical gold, especially buying from major markets such as China, may continue to support gold prices in future market fluctuations.

In short, the gold market is currently at a critical crossroads. Although short-term sharp fluctuations and price corrections have attracted widespread attention in the market, the long-term bull market trend has not completely disappeared, and changes in market sentiment and capital flows will continue to play an important role in the trend of gold prices. When facing market uncertainties, investors need to combine short-term fluctuations with long-term trends to make more rational and comprehensive investment decisions.