Gold prices are struggling to hold above $1,850. Does this suggest the beginning of a bearish trend? Geopolitical risks and emerging stagflation should see haven flows, but the yellow metal is at risk of suffering a sharp downmove if these flows disappear, economists at ANZ Bank report.

Rising real rates and a stronger USD cap the upside

“We acknowledge that hawkish central banks, rising real rates and a stronger US dollar have taken the shine off the gold market. Withdrawal of unprecedented fiscal and monetary support is also weighing on sentiment. 

“It’s likely that haven buying is propping-up gold, from a geopolitical view and an economic one. If this buying dissipates, gold could suffer a sharp correction.”

“Mounting geopolitical and economic risks, due to the ongoing Russia-Ukraine war, should see gold reasserting its haven status.”

“Supply shock-driven inflation could offset the impact of rising rates, limiting a rotation back to yielding assets. Fears are rising that economic growth will fall if central banks hold their tightening stance. With such an uncertain economic backdrop, investors may look for a safe store of value.”