Has Gold Already Bottomed? Institutions Warn a Cyclical Low May Be Near

Gold has recently undergone a sharp correction, ending a multi-year uptrend and prompting investors to reassess the precious metal's outlook. However, the recent decline has not altered gold's long-term appeal as a safe-haven asset. Instead, the pullback may present an opportunity for long-term investors to rebuild positions.

Since the outbreak of the Iran conflict on February 28, gold prices have fallen by approximately 22%. The decline has surprised many market participants, as geopolitical tensions traditionally support gold demand by increasing demand for inflation and risk hedges.

According to UBS, the market may be pricing in the possibility that the Federal Reserve could raise interest rates in response to rising inflationary pressures. Because gold is a non-yielding asset, higher real interest rates tend to reduce its attractiveness. There were also market rumors that several Middle Eastern central banks had sold gold reserves during the conflict to raise liquidity, although only transactions by the Central Bank of Türkiye have been officially confirmed. Data from the World Gold Council shows that Türkiye sold 81 tonnes of gold during the first half of the year, equivalent to approximately US$10.6 billion at current prices.

Despite the recent correction, gold has continued to deliver strong longer-term performance. Over the past 12 months, gold prices have gained roughly 21%, slightly outperforming the S&P 500 Index. Analysts believe that the recent weakness has not undermined gold's role as an effective portfolio hedge.

World Gold Council data also indicates that global central bank gold purchases have accelerated since the outbreak of the Russia-Ukraine conflict in 2022. Many countries have increased their gold reserves to reduce dependence on the U.S. dollar-based financial system and lower potential exposure to financial sanctions. This trend extends well beyond Russia and China. During the first half of this year, Poland became the world's largest net purchaser of gold, highlighting a broader effort among central banks to strengthen reserve diversification.

Meanwhile, the Federal Reserve's policy outlook remains highly uncertain. Although higher oil prices could fuel inflation, it remains unclear whether the Fed would respond with additional rate hikes. Markets currently assign roughly a 50% probability to a rate increase at the September meeting.

New Federal Reserve Chair Kevin Warsh has so far emphasized maintaining price stability but has provided limited guidance on future monetary policy. The Fed has also established several working groups to study inflation dynamics and the impact of artificial intelligence on productivity, with findings expected later this year.

Notably, if the Fed underestimates inflationary pressures caused by rising energy prices, inflation could remain elevated. Conversely, if AI investment slows, policymakers could ultimately adopt a more accommodative stance. Under either scenario, declining real interest rates would likely provide renewed support for gold prices.

Market Insight:

On the 4-hour chart, gold continues to rebound, with both the MACD lines and histogram expanding above the zero line, indicating strengthening bullish momentum. The latest recovery is not being driven by renewed enthusiasm for a particular investment theme, but rather by growing concerns over the long-term depreciation of fiat currencies. As inflation, government debt, and fiscal deficits continue to rise globally, gold is likely to remain an important asset for investors seeking to preserve purchasing power and manage long-term financial risks.