Quarterly Outlook
Equity outlook: The high cost of global fragmentation for US portfolios
Charu Chanana
Chief Investment Strategist
Access both platforms from your single Saxo account.
Gold corrects sharply from record highs as Chinese demand pauses
Ole Hansen
Head of Commodity Strategy
This content is marketing material
Key points:
- Gold’s correction from last month’s record high at USD 3,500 continues to unfold, gathering pace as global risk sentiment shows tentative signs of improvement.
- While the short-term correction has been driven by improved market sentiment, the structural drivers underpinning gold's strength remain firmly in place
- One key dynamic we continue to watch is Chinese investors which have emerged as a dominant source of demand, particularly through local gold-backed ETFs
- With Chinese markets closed for the Labour Day holiday through May 5, this bid has temporarily evaporated, exposing gold to additional downside pressure
Gold’s correction from last month’s record high at USD 3,500 continues to unfold, gathering pace as global risk sentiment shows tentative signs of improvement. The initial catalyst was renewed optimism surrounding potential progress in U.S. trade negotiations—particularly with China and the EU—which, combined with a tech-led rebound in U.S. equities and a firmer dollar, prompted profit-taking after a year-long rally that has lifted the yellow metal by 22% year-to-date and nearly 40% over the past twelve months. In our most recent market update, we flagged the increasing risk that the sharp reversal from the blow-off top—exacerbated by former President Trump’s subsequently retracted threat to dismiss the Federal Reserve chair—could pave the way for a deeper correction. With risk sentiment stabilizing and equity markets finding a bid, gold has struggled to maintain upside traction and is now seeking support at key technical levels. The broader uptrend in gold has been driven by a confluence of macroeconomic and geopolitical forces. Chief among them: a weakening U.S. dollar, persistent central bank de-dollarisation, and mounting concerns over the ballooning U.S. fiscal deficit. Meanwhile, the U.S.–China trade conflict, far from resolved, continues to cast a long shadow over global growth, reinforcing the role of gold as a strategic hedge against economic dislocation and policy missteps. While the short-term correction has been driven by improved market sentiment, the structural drivers underpinning gold's strength remain firmly in place. Disappointing economic prints this week from both the U.S. and China underscore the fragile state of the global economy and reignite fears of a tariff-driven growth slump. These dynamics reinforce gold’s role in a diversified portfolio, particularly as inflation remains sticky and bond yields volatile.
One key dynamic we continue to watch is Chinese investor behavior. As previously noted, China has emerged as a dominant source of demand, particularly through local gold-backed ETFs, which have already surpassed their 2024 inflow totals. The surge in premiums over international spot prices highlights persistent domestic appetite—largely retail-driven—amid concerns over the weakening yuan, a fragile property market, and doubts over the long-term stability of the U.S.–China relationship.
Recent data from Morgan Stanley tracking COMEX gold futures trading activity adds further colour. During a recent four week period, gold futures fell 5.9% during U.S. "pit" trading hours (08:20 to 13:30 EST), but gained a striking 14.7% during "non-pit" hours—primarily reflecting Asian and European market activity. The takeaway is clear: the rally to record highs was almost entirely fuelled by demand from Asia, particularly China.
However, with Chinese markets closed for the Labour Day holiday through May 5, this bid has temporarily evaporated, exposing gold to additional downside pressure. The key question now is whether Chinese investors will return next week with the same intensity, or whether price softness during the holiday lull will prompt further long liquidation.
From a technical perspective, applying Fibonacci retracement levels to the USD 544 rally that followed the early April deleveraging event suggests initial support may emerge near USD 3,165—a 61.8% retracement—just below the April 3 local high at USD 3,168. A deeper correction could extend toward the USD 2,950 to 3,000 zone, a psychologically and technically significant area.
Positioning data reinforces the fragility of the current setup. During the week ending April 22—when gold briefly spiked to USD 3,500—managed money traders, including hedge funds and CTAs, were net sellers for a fifth consecutive week, cutting net long exposure to a 13-month low. This was mirrored by a post-Easter reduction in bullion-backed ETF holdings in the West, suggesting that Western institutional demand is cooling, at least temporarily.
With the speculative community reducing exposure and Chinese demand on pause, the short-term path for gold hinges on whether Asian buying returns post-holiday. Should it fail to re-emerge with conviction, further long liquidation cannot be ruled out.
Having already reached our 2025 price target of USD 3,500, we are currently in wait-and-see mode, monitoring the extent and depth of the ongoing correction. However, with several key structural drivers—outlined below—unlikely to dissipate in the near term, we continue to view the risk skewed toward even higher prices over time.
US Fed Funds rate expectations: Market participants closely watch interest rate expectations set by the Federal Reserve, as they heavily influence the attractiveness of gold. Currently, the futures market is pricing in the possibility of a 75–100 basis point rate cut before year-end, suggesting a more accommodative monetary policy. Lower interest rates reduce the opportunity cost of holding gold (which doesn’t pay interest), thereby supporting its price.
Investment demand for “paper” gold through futures and exchange-traded funds (ETFs): The demand for gold-backed financial products depends on technical market factors, such as price momentum, as well as macroeconomic indicators. In addition, a key factor for investors in ETFs is the cost of holding a non-yielding assets like gold, with the prospect for lower funding cost and recession worries boosting demand.
Rising US inflation expectations: Investors often turn to gold as a hedge against inflation. Recently, falling real yields (nominal yields minus inflation expectations) across the US Treasury yield curve have signaled growing concerns about future inflation. As inflation expectations rise, the real return on fixed-income assets decreases, increasing the relative appeal of gold.
Geopolitical risks: Global instability tends to push investors toward safe-haven assets like gold. A recent correlation between defense stocks and gold suggests that as geopolitical tensions rise—such as conflicts, wars, or diplomatic strains—investors seek safety in gold, thereby supporting its price. In addition, the current trade war adds downside risks to growth while lifting the geopolitical temperature, especially between the US and China, the world's two biggest economies.
Central bank demand amid continued focus on reducing dependency on the USD: A growing number of central banks are diversifying their reserves away from the US dollar, often turning to gold as a neutral reserve asset. Notably, China, India, Turkey, and Russia have been leading this trend. In the last three years to 2024, central banks bought more than 1,000 tons in each year, a process that looks set to continue in 2025 and beyond, thereby underpinning the market as supply is being removed from the market.
Strong Asian demand, particularly from Chinese investors, driven by concerns over domestic economic instability, weak real estate and stock markets, and as a hedge against potential Renminbi devaluation amid tariff-related export pressures.
Recent commodity articles:
29 April 2025: Copper navigates energy transition supply shocks and market turmoil
28 April 2025: COT Report: Continued gold selling; USD weakness drives record JPY long
25 April 2025: Commodities weekly Energy slump overshadows strength in gold and agriculture
23 April 2025: Blowout top leaves Gold in consolidation mode
22 April 2025: Commodities return Why allocation matters
16 April 2025: Whats next as gold hits our USD 3300 target
15 April 2025: COT Reports show hedge funds racing to cash post-Liberation Day
11 April 2025: Commodities weekly As chaos reigns whats next for markets
10 April 2025: YouTube Interview: Gold, silver, copper, oil - prices, supply, demand in 2025
8 April 2025: Golds deleveraging pullback fails to shake supportive outlook
8 April 2025: Golds deleveraging pullback fails to shake supportive outlook
7 April 2025: COT on Forex and Commodities - April 7 2025
4 April 2025: Commodities weekly Tariff-led recession pain triggers sharp reversal
3 April 2025: Tariff-related recession fears ignite widespread commodities selloff
2 April 2025: Commodity Outlook: Commodities rally despite global uncertainty
31 Mch 2025: COT Report: Ongoing USD selling amid mixed week for commodities
26 Mch 2025: Commodities show strength in Q1, led by a select few
25 Mch 2025: Crude oil Sanctions threat counters tariff-driven demand worries
24 Mch 2025: COT on Forex and Commodities - 24 March 2025
21 Mch 2025: Commodities weekly: High-flying precious metal sees profit taking
19 Mch 2025: Has the gold express already left the station?
17 Mch 2025: COT Report: Silver and copper stands out in week of energy weakness
14 Mch 2025: Gold surges past USD 3,000 as haven demand grows
12 Mch 2025: Tariffs and the energy transition: Key drivers of copper demand
11 Mch 2025: Gold holds steady despite deleveraging risks in volatile markets
10 Mch 2025: COT Report: Wholesale reductions in speculators' USD and commodity longs
7 Mch 2025: Commodities Weekly: Tariffs, trade tensions, fiscal bazooka, and Ukraine
5 Mch 2025: Tariff threat disconnects HG copper from global market
4 Mch 2025: Stagflation and geopolitical tensions fuel renewed demand for gold
3 Mch 2025: COT Report: Broad retreat sees WTI longs slump to 15-year low
Podcasts that include commodities focus:
23 April 2025: Trump going soft on tariffs versus the direction of travel.
11 April 2025: US and China are slipping into an economic war
4 April 2025: Markets melts down as recession risks go global
1 April 2025: Bracing for Liberation Day
25 Mch 2025: Did Trump just blink?
18 Mch 2025: US market found support, but how durable will it be?
14 Mch 2025: Is silver set to shoot the lights out?
10 Mch 2025: US un-exceptionalism is the theme
7 Mch 2025: US bear market risks ratchet higher. EUR train has left the station
4 March 2025: Are we on the verge of a big whoosh?
Latest Market Insights
Quarterly Outlook
-
-
Quarterly Outlook
Commodity Outlook: Commodities rally despite global uncertainty
Ole Hansen
Head of Commodity Strategy
-
Quarterly Outlook
Upending the global order at blinding speed
John J. Hardy
Global Head of Macro Strategy
We are witnessing a once-in-a-lifetime shredding of the global order. As the new order takes shape, ... -
Quarterly Outlook
Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever
Jacob Falkencrone
Global Head of Investment Strategy
-
Quarterly Outlook
Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?
John J. Hardy
Global Head of Macro Strategy
-
Quarterly Outlook
Equity Outlook: The ride just got rougher
Charu Chanana
Chief Investment Strategist
-
Quarterly Outlook
China Outlook: The choice between retaliation or de-escalation
Charu Chanana
Chief Investment Strategist
-
Quarterly Outlook
Commodity Outlook: A bumpy road ahead calls for diversification
Ole Hansen
Head of Commodity Strategy
-
Quarterly Outlook
FX outlook: Tariffs drive USD strength, until...?
John J. Hardy
Global Head of Macro Strategy
-
Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy