What triggered gold’s March fall, and why April looks different

Dubai: Gold’s sharp March decline has caught investors off guard, coming at a time when geopolitical tensions and inflation risks would typically support prices, yet the move was driven less by fundamentals and more by a rapid unwind of leveraged positions across markets. (Check latest UAE gold prices here, alongside prices in Saudi Arabia, Oman, Qatar, Bahrain, Kuwait, and India.)

According to the World Gold Council’s Gold Market Commentary, Anatomy of a fall, bullion dropped 12% during the month to $4,608 an ounce, marking its weakest performance since June 2013. The fall extended across all major currencies, even though gold remains higher on a year-to-date basis.

The scale and speed of the drop point to a market driven by liquidity needs, not a shift in gold’s long-term appeal.

Gold’s slide unfolded during the first three weeks of March, in what the World Gold Council describes as a counterintuitive but familiar pattern during periods of stress.

“Gold is not a contractual hedge. Prices rise only when incremental buyers exceed sellers,” the report noted, capturing the mechanics behind the move.

That balance shifted sharply as investors moved to raise cash. Global gold ETFs recorded $12 billion in outflows, led by North America, while COMEX net long positions also declined, reflecting a broad reduction in exposure across both institutional and retail segments.

Retail exposure built up in previous months began to unwind, with non-reportable positions falling alongside managed money holdings. Commodity Trading Advisors, who had entered March with heavy long exposure, accelerated selling once technical levels were breached.

At the same time, pressure in other asset classes spilled into gold. Equity market weakness and elevated margin levels triggered cross-asset deleveraging, forcing multi-asset investors to reduce positions and meet liquidity requirements.

Rising US bond yields compounded the sell-off, particularly at the short end of the curve where inflation concerns drove a sharp move higher in two-year yields and breakeven rates.

The dollar strengthened during the period, though the World Gold Council notes its impact was secondary. Momentum-driven selling, amplified by technical triggers and liquidity stress, played a larger role than macro fundamentals.

Speculation around central bank activity added another layer of pressure. Türkiye’s use of around 50 tonnes of gold as collateral through swaps stirred market chatter, even though the move reflected liquidity management rather than a strategic shift.

Regional disruptions, including travel constraints and softer tourist demand, had only a marginal effect on global pricing.

The report states that while jewellery demand and small bar purchases weakened in parts of the Middle East, the scale was insufficient to influence international markets. Trading volumes in Dubai rose during the period but remained too small to drive global price direction.

High-net-worth investor selling was also not a dominant factor, with flows appearing more aligned with relocation of holdings than outright liquidation.

Early April data suggests some easing of pressure. ETF flows have turned positive across regions, while the dollar has struggled to extend gains beyond recent highs.

Options markets indicate near-term caution, with elevated hedging demand, though positioning further along the curve reflects a more constructive outlook for gold.

There are also early indications of renewed buying interest from wealth managers and retail investors at stabilised price levels.

Short-term risks remain tied to liquidity conditions rather than traditional drivers such as inflation or geopolitical stress.

Sustained oil prices above $100 a barrel could trigger another round of cross-asset deleveraging, pushing yields higher and forcing further liquidation across portfolios, including gold.

The World Gold Council noted that while underlying fundamentals remain intact, near-term price action will depend heavily on how investors respond to liquidity pressures stemming from ongoing geopolitical developments.