Recently, the international gold market has encountered a sudden downturn, marking a shift into a turbulent adjustment phaseFrom November 18 to 19, spot gold showed signs of a rebound after experiencing six consecutive days of decline, with prices reaching approximately $2626 per ounce by 5 PM Beijing time on November 19. This fluctuation highlights the volatile nature of gold prices, which have long been regarded as an indicator of market stability and investor sentiment.

This latest downturn in gold prices coincided with a noticeable rise in the yield on the U.S10-year Treasury bond, which recently surpassed the critical threshold of 4.5%. The historical inverse relationship between bond yields and gold prices appears to have reasserted itselfIndustry experts attribute this pressure on gold prices to a combination of factors, including shifting market expectations regarding re-inflation, adjustments in anticipated Federal Reserve interest rate cuts, and a general decline in risk-averse sentiment among investors

However, from a broader perspective, there remains a belief that long-term growth potential for gold prices is still intact.

The recent surge in gold prices, characterized by significant highs followed by abrupt declines, is underscored by market dynamics that are complex and multifacetedFor instance, the price of gold hit a peak of $2789.92 per ounce on October 31, only to plummet nearly 8% in a matter of weeks, eventually touching a low of $2536.5 per ounceThis kind of sharp fluctuation is not uncommon for gold, especially as it reacts to shifts in economic indicators and geopolitical developments.

In China, domestic gold prices also reflected this precarious situation, with the Shanghai Gold Exchange reporting a price of 607.30 RMB per gram as of November 19, a decline of over 4.6% since October 31. Moreover, the main futures contract for gold settled at 609.84 RMB per gram, indicating that the local market is sensitive to international trends

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The fast-paced environment surrounding gold trading demonstrates the intricate interplay between domestic and international factors that affect pricing.

As market watchers dive deeper into these trends, they observe a reversion to the negative correlation between U.STreasury yields and gold pricesThe rebound in Treasury yields, which began after the Federal Reserve's interest rate cuts in September, climbed from around 3.6% to approximately 4.5%, indicating a robust upward trajectoryTraditionally, there has been a clear negative relationship between real interest rates and gold over the long termHowever, the years of rising U.Sinterest rates have not stifled gold prices but rather have, at times, propelled them to historical highsEven with current market adjustments, gold prices have seen an increase of over 27% within the year.

According to a report by Guotai Junan International, the expected inverse relationship between gold prices and U.S

bond yields has notably shifted since the Federal Reserve's rate hike cycle began in 2022. This reversal highlights a dual transformation; on one hand, rising inflationary pressures combined with intensified geopolitical conflicts have bolstered gold’s allure as a safe havenOn the other, the trends towards de-globalization and escalating U.Sdebt levels are facilitating a multipolar transformation of the international monetary system.

As the Federal Reserve transitions into a rate-cutting cycle, experts note that the inverse correlation between gold and bond yields is re-establishing itselfZheshang Futures analyst Zheng Hong posits that this relationship is closely intertwined with the Federal Reserve's monetary policy cycle, suggesting that during interest rate hikes, the correlation weakens, while in a rate-cutting period, it strengthensTherefore, as market dynamics evolve, so do the fundamental underpinnings of gold pricing.

Several factors contribute to the current decline in international gold prices

This year has witnessed gold's prominent role in investors' strategies, as it achieved new highs, but the recent shift towards volatility indicates a comfort zone being disturbed by various pressuresMarket participants are currently grappling with "re-inflation" expectations that have shifted, leading to a stronger U.Sdollar and rising bond yieldsZheng notes that upcoming economic policies in the U.S., such as potential tax hikes or significant cuts, could spur renewed inflation expectations, thereby influencing the pace of rate cuts anticipated by the Federal Reserve next year.

Last week, the release of U.Sconsumer price index (CPI) and producer price index (PPI) data exceeded expectationsCoupled with Federal Reserve Chair Jerome Powell’s hawkish signals indicating no rush to cut rates, both the dollar index and U.STreasury yields climbed higher, which negatively impacted gold prices and drove them down over 4.5% — the largest weekly decline in over three years.

Additionally, the easing of safe-haven demand and reducing investment interest have contributed to the falling gold prices

Zheng emphasizes that reduced investment and risk-hedging demand are fundamental reasons behind this round of price declinesBoth aspects are closely tied to gold's financial attributes, and significant supply-demand fluctuations are dictating the current pricing landscape in the gold market.

Bank of China researcher Fan Ruoying notes that previously, the safe-haven attributes of gold significantly influenced its pricingYet, post the U.Spresidential election, global market anxieties have lessened, causing some funds to withdraw from the gold marketGiven the substantial rise in gold prices this year, differing investment strategies are emerging, reflecting a divide among investors.

Nevertheless, the underlying logic for a long-term increase remains compellingAs industry analysts contemplate the trajectory of international gold prices, they consider the overarching need to shift focus from short-term speculation towards long-term asset price trends

According to Fan Ruoying, gold is a unique commodity that embodies the properties of currency, finance, and physical goods, which collectively facilitate its role as a hedge against inflation, an investment vehicle, and a safe haven.

While the current adjustment phase presents its challenges, the medium to long-term outlook on gold prices appears optimisticFan Ruoying predicts that categories such as U.Sinflation trends and Federal Reserve monetary policy changes will continue to unveil uncertainties, exerting pressure on gold prices short-termStill, the ongoing move towards "de-dollarization" by central banks worldwide, alongside rising geopolitical uncertainties and the Fed's current rate-cutting trajectory, will likely drive gold prices upward in the future.

Zheng underlines that although the Fed is currently in a rate-cutting cycle, a slowdown in the anticipated pace of cuts may slightly dampen the downward trend of rates