The price of gold has fallen to a six-month low, influenced by heightened tensions in the Middle East, rising U.S. interest rate expectations, and an upcoming SpaceX IPO. As of Thursday, gold was priced at $4,022 per troy ounce, marking a decline of over 20% since the onset of the US-Israel war against Iran. Speculative investors have exited the market, leading to significant gold sell-offs from central banks, including Turkey and Russia, which were compelled to liquidate their gold reserves to stabilize their currencies. Increased expectations of a U.S. interest rate rise have further diminished gold's appeal, as investors shift towards government bonds. Furthermore, anticipated initial public offerings, like SpaceX's, are expected to create liquidity drains, pressuring gold and cryptocurrency prices. Despite the turmoil, global central banks continue to be net buyers of gold, which remains the largest reserve asset by value as of last year.

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Gold sinks to 6-month low as speculative investors exit

Bullion set for worst quarter in almost a decade as Iran war, expectations of US rate rises and SpaceX IPO weigh on price

Stacks of gold bars of varying sizes arranged on a reflective surface inside a safe deposit room. Gold has fallen more than 20 % since the US-Israel war against Iran began in February© Reuters

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Leslie Hook, Ramsay Hodgson and Ian Smith in London

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The price of gold dropped to a six-month low on Thursday as tensions in the Middle East, growing expectations of US interest rate rises and the looming SpaceX initial public offering piled pressure on bullion.

Gold fell more than 1 per cent to touch $4,022 per troy ounce on Thursday morning, its lowest level since late November and leaving it on course for its worst quarter of performance in almost a decade. It was later trading up slightly on the day at $4,091.

The yellow metal has fallen more than 20 per cent since the beginning of the war in the Middle East, which has forced some central banks to sell gold to help defend their currencies. It has also triggered an exodus of the speculative investors who had driven a bullion-buying frenzy late last year and early this year.

“When things kicked off in Iran, people de-risked their portfolios,” said Peter Kinsella, head of investment services at UBP. “People are selling gold to fund other non-performing assets on a margin basis. Any de-risking move is going to result in sales of gold.”

Several central banks have been forced to sell gold in recent months, including Turkey, which sold and swapped $20bn in gold to defend its currency. Russia has also sold gold to prop up its fiscal coffers.

Line chart of $ per troy ounce (Comex) since January, showing gold loses lustre

A major drag on gold during the war has been a shift higher in US interest rate expectations, increasing the relative allure of Treasuries and other government bonds.

A burst of inflation driven by surging oil prices has prompted traders to swing from expecting two or three quarter-point interest rate cuts by the end of the year to now anticipating one quarter-point increase. That has driven up the opportunity cost of holding gold, an incomeless asset.

SpaceX’s giant IPO on Friday could pull down gold prices even further, said Tom Price, analyst at Panmure Liberum. AI companies Anthropic and OpenAI are also planning listings.

“It is a potential drag on gold, because investors are looking somewhere else to keep the party alive,” he said. “Gold is struggling at the moment, and they are looking at the next big thing. And SpaceX is the next big thing.”

Mohit Kumar, analyst at Jefferies, sees the upcoming mega IPOs “as a liquidity drain event in the near term”, which has weighed on prices for gold and crypto assets.

The surge of retail interest in gold and silver helped to drive a historic bull run, which at its peak saw gold prices double in two years. However, retail investors have since reversed course, with outflows from the gold-backed exchange-traded flows contributing to the sell-off.

Gold ETFs saw net outflows of 55 tonnes during March through May, reversing the trend after nine consecutive months of inflows, according to data from the World Gold Council.

Globally, central banks remain net buyers of gold, which overtook US Treasuries to become the largest reserve asset by value at the end of last year, according to a recent report from the European Central Bank.

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