Triple Pressure on Gold: Rate Hike Expectations, Central Bank Selling, and IPO Boom

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Gold is currently facing multiple headwinds simultaneously. Rising expectations of interest rate hikes, some central banks being forced to sell reserves, and the outflow of funds attracted by technology giants’ IPOs have combined to exert triple pressure. As a result, gold prices have fallen to a six-month low and may record their worst quarterly performance in nearly a decade.

On Thursday, gold prices fell over 1% at one point, touching $4,022 per ounce—the lowest since the end of last November—before recovering to around $4,189. Since the outbreak of the Middle East conflict in February this year, the cumulative decline in gold prices has exceeded 20%.

The core driving force behind this round of declines is a fundamental shift in market expectations for the Fed’s interest rate path. Traders have moved from expecting two to three rate cuts this year to now expecting a rate hike. At the same time, IPOs from tech giants like SpaceX are diverting investor funds, further weakening the appeal of gold.

Reversal in Interest Rate Expectations, Rising Opportunity Costs

Surging oil prices and the resulting inflationary pressures are the main macro backdrop for gold’s recent weakness. Traders’ expectations for the Fed’s rate path this year have shifted dramatically, from two to three rate cuts previously, to now expecting one rate hike.

This reversal in rate expectations has directly increased the opportunity cost of holding gold. Gold itself yields no income, so when the relative attractiveness of U.S. Treasuries and other government bonds rises, funds tend to flow out of gold.

According to the Financial Times, Peter Kinsella, head of investment services at UBP, stated, “After the Iran situation erupted, investors started to reduce portfolio risk exposure. They sold gold to cover margin calls in other underperforming assets. Any de-risking activity will lead to selling gold.”

Flows in gold ETFs confirm this trend. World Gold Council data shows that from March to May this year, net outflows from global gold ETFs reached 55 tons, ending a nine-month streak of consecutive net inflows.

Central Bank Forced Sales Increase Supply Pressure

The outbreak of conflict in the Middle East has forced some central banks to liquidate gold reserves to defend their currencies, further increasing supply pressure on the market.

Recently, Turkey sold and swapped $20 billion worth of gold reserves to support its currency; Russia has also sold gold to fill fiscal gaps.

It is worth noting that these selling activities are passive responses and do not represent a change in the overall stance of global central banks. Globally, central banks remain net buyers of gold. A recent report from the European Central Bank shows that by the end of last year, gold had surpassed U.S. Treasuries to become the largest single category of global reserve assets by value.

IPO Boom Diverts Funds, Gold Loses Narrative Dominance

Beyond macro pressures, the imminent wave of IPOs from tech giants is competing with gold for investor attention and liquidity.

SpaceX plans to launch a massive IPO on Friday, and AI companies Anthropic and OpenAI are also preparing to go public. Tom Price, an analyst at Panmure Liberum, said, “This poses a potential drag on gold because investors are looking for other exciting opportunities. Gold is now in a predicament, and they are searching for the next big thing—SpaceX is the next big thing.”

Jefferies analyst Mohit Kumar described these large IPOs as “recent liquidity withdrawal events,” stressing that this has been putting pressure on gold and crypto asset prices.

Previously, the influx of retail investors had fueled a historic bull run in gold, with prices doubling in two years. However, as market sentiment shifts, retail money has begun to withdraw, and, coupled with institutional funds being redirected to the IPO market, the bullish narrative for gold is facing challenges.

Risk Disclosure and DisclaimerThe market involves risk, and investors should proceed with caution. This article does not constitute personal investment advice and does not consider the specific investment objectives, financial situation, or needs of individual users. Users should determine whether any opinions, views, or conclusions in this article suit their particular circumstances. Investing based on this article is at your own risk. ```