The March meltdown

March proved to be a challenging month for gold investors globally, as the precious metal lost value across all major currencies. The month saw global gold ETFs shed a record US$12 billion, equivalent to 84 tonnes. North America led the outflows with US$14 billion, while Europe also contributed to the decline with US$0.1 billion in outflows. In contrast, Asia provided a glimmer of hope with inflows amounting to US$1.9 billion, highlighting a regional appetite for buying on dips.

According to the monthly attribution model GRAM, the bulk of the sell-off was attributed to momentum factors such as global gold ETF outflows, a reversal in price trends, and a net long unwind on the COMEX. Lesser contributions came from the strengthening US dollar and rising yields.

"Deleveraging and liquidity dynamics, not fundamentals, led the March sell-off in gold," explained a market analyst. This sentiment was echoed by the observation that disruptions in Middle East flows were unlikely to have significantly impacted global gold prices.

Sell what you can, not what you want

The sharp sell-off in gold during the first three weeks of March was both unexpected and unprecedented, occurring amidst a backdrop typically supportive of gold: elevated geopolitical tensions and renewed inflation concerns. "Gold's sell-off during the first three weeks of March was sharp, counter-intuitive, but not unprecedented," noted the analyst, highlighting the liquidity needs that tilted the balance in favour of sellers.

Several factors contributed to the downward pressure on gold prices. Firstly, there was a reported build-up in retail exposure to gold, which risked a flush out. COMEX Non-Reportable positions, often associated with retail exposure, saw a cumulative 18-tonne net drop during the first three weeks, mirroring a 22-tonne drop in Managed Money positions. This reflects a significant shift in institutional money.

Additionally, CTA-driven selling likely amplified the downside momentum. Commodity Trading Advisors, who were reportedly very long heading into mid-March, unwound positions sharply when gold broke through its 50/55-day moving average on 16 March, a level it hadn't breached in seven months.

Broader cross-asset deleveraging also spilled into gold. Elevated margin debt relative to market capitalisation contributed to widespread equity selling, with all but one sector in the S&P 500 (energy) posting declines. "Against that backdrop, gold was not immune to liquidation pressure," the analyst remarked, noting that deleveraging by multi-asset investors, including CTAs with exposure to equities, likely generated incremental selling in gold as positions were reduced to meet liquidity needs.

Moreover, bond market dynamics reinforced the pressure. US bonds were sold on a near-term inflation shock with 2-year nominal yields and breakeven rates shooting higher. Central bank intervention, and speculation about central bank sales, may have further added to the downward price pressure. A decision by The Central Bank of the Republic of Türkiye to use approximately 50 tonnes of gold as collateral may have fuelled rumours of selling.

Middle East flow disruption

Disruptions in the Middle East were unlikely to have had a material impact on global gold prices in March. Travel disruptions and lower tourist footfall weighed on demand for jewellery and small bars, particularly from foreign buyers. Local prices moved into a deeper discount to COMEX, though the adjustment was modest.

Trading volumes in Dubai increased during the period, but not at levels sufficient to influence international prices. High-net-worth investor selling was also unlikely a significant factor in March, as many hold gold outside the region, notably in Swiss vaults.

Looking ahead: cautious optimism

Despite the March turmoil, there are signs of stabilisation in the gold market. Early April ETF flows into gold have been positive across regions, and options markets point to elevated near-term hedging demand, with a more constructive bias further out the curve. This suggests that investors continue to view gold favourably over a medium-term horizon.

However, risks remain. Should geopolitical tensions keep oil prices elevated, further cross-asset deleveraging, yield blow-outs, or gold mobilisation by the official sector could pose challenges. While fundamentals remain supportive, the near-term price action is likely to remain sensitive to conflict-driven liquidity needs rather than macro signals alone.