Gold’s deep slide since a stellar beginning in January has unnerved investors. The yellow metal typically served as a haven asset in conflicts, yet amid war in the Middle East and disruptions to commodity flows, it reached a 25% drawdown.
For Paul Wong, Sprott’s Managing Partner, the move says less about weakening conviction in the metal than a system suddenly short of cash.
“Gold is being sold because liquidity is being raised, not because its role as a strategic asset has diminished,” he wrote.
Wong notes how the unwinding of short-dollar trade has worsened the decline. He sees a systemic reduction in exposure tied to higher rates, firmer dollar, and capital rotation into energy.
The closure of the Strait of Hormuz during the Iran-linked conflict has added another layer by disrupting about 20% of global oil shipments, squeezing reserve accumulation in Gulf states that had been among the buyers helping support bullion.
That reserve-flow story matters because, since the freezing of Russia’s foreign exchange reserves in 2022, sovereign buyers have been shifting away from Treasuries and toward gold.
“Gold has become …
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