Gold has done its job providing investors with liquidity in times of uncertainty - Standard Chartered’s Cooper
Investors may be disappointed with gold’s recent price action, as it has just ended its longest consecutive losing streak in history; however, one market analyst said that the precious metal has actually continued to do its job as a safe-haven asset throughout the decline.
In her latest precious metals report, Suki Cooper, Global Head of Commodities Research at Standard Chartered Bank, said that gold has provided investors with important liquidity as the U.S.-Israel war with Iran has created significant global supply chain issues, distressing financial markets. At the same time, the chaos in the Middle East is driving energy prices higher, igniting new inflation fears.
In an interview with CNBC, Cooper said that because of the size of the gold market, it can be an easy source of liquidity for investors during periods of economic uncertainty.
“While selling gold tends to be a preferred way to meet liquidity needs amid margin calls or asset rotation at times of extreme distress, the pace of the sell-off has been sharper than expected. Liquidity needs could keep gold under pressure for four to six weeks, based on historical trends,” she said in the report.
Although gold has found some initial support at its 200-day moving average, Cooper said that the market is still in the process of finding a bottom. This week, gold has managed to bounce off support at $4,100. Spot gold last traded at $4,577.50 an ounce, up nearly 3% on the day.
However, Cooper noted that many retail investors—the main source of demand behind gold’s run to record highs in January—are holding losing positions, potentially creating more short-term downside pressure.
“An analysis of gold ETP flows shows that at least 83t of holdings are in loss-making territory at prices of USD 4,500/oz; this rises to 268t at USD 4,000/oz. Gross inflows of 430t have been added at prices above USD 4,000/oz since January 2025,” she said. “Assuming ‘last in first out’ (LIFO) for ETP buyers, approximately 115t of gold holdings are loss-making and vulnerable to liquidation; this would rise to 357t if prices fell to USD 4,000/oz.”
Cooper said that she suspects more investors will have to liquidate their ETF holdings before gold finds firmer support.
Cooper also noted that while liquidity demand explains some of the selling pressure in gold, overextended bullish positioning has also contributed to the extreme selling pressure.
“Short interest in the largest gold ETP fell sharply (by 19%) in the last two weeks of February compared with mid-February levels. Short positioning had fallen below the five-year average before the start of the Middle East conflict. This underscores heavy positioning in gold, which exposed it to downside risk,” she said.
Although gold could see lower prices in the near term, Cooper expects prices to recover when losing positions have been liquidated.
“Gold prices tend to rally in an environment of rising inflation, particularly if it is unexpected and prolonged; thus, the current dynamics could support further upside risk,” she said. “The 1970s oil shocks also underscore that a stagflationary environment tends to drive gold prices higher, given gold’s role as a store of value. The policy response will be key, however.”
