Economic Expert: Global Liquidity Crunch Behind Sharp Drop in Gold Prices

Gold prices have witnessed a sharp decline recently, raising concerns among market participants, especially given the rapid drop in both local and global prices. However, market analyses indicate that this movement does not reflect a collapse in gold’s fundamentals, but rather a liquidity crunch and temporary shifts in global capital flows.

Jack Raafat, an economic expert, explained that a significant part of gold’s decline is linked to geopolitical tensions around the Strait of Hormuz, which pushed oil prices to high levels exceeding $119 per barrel. Although geopolitical crises usually support gold as a safe haven, this time the shock from rising energy prices fueled global inflation concerns, prompting capital to move toward the U.S. dollar and energy markets instead of gold.

At the same time, the U.S. Federal Reserve continues its tight monetary policy, keeping interest rates elevated for a longer period, which enhances the dollar’s attractiveness while pressuring gold.

Forced Liquidations and Pressure on Gold

Raafat pointed out that the rapid drop in gold is also due to major investors liquidating some of their gold positions to cover losses in other markets or to free up quick liquidity. This phenomenon, known in the markets as “forced liquidation,” occurs when investors sell profitable assets to cover obligations or losses in other holdings.

Amplified Effects in the Egyptian Market

He added that the global decline in gold pushed domestic prices down, but the local market maintained roughly a EGP 350 premium over global rates due to relative exchange rate stability. This gap magnified the effect of the global drop on gold prices in Egypt, leading many traders and shops to temporarily halt pricing, buying, and selling.

Is the Decline a Buying Opportunity?

Raafat believes that the current movement may represent a market correction, or what some describe as short-term money exiting the market while long-term investors remain.

He emphasized that the fundamental factors supporting gold remain intact, including ongoing central bank purchases, high global debt levels, geopolitical tensions, and persistent global inflation concerns.

He advises against trying to buy gold at the absolute lowest price, as identifying the bottom is difficult. Instead, he recommends dividing capital into several portions and entering the market gradually— a strategy that helps achieve a favorable average price while minimizing risks and market volatility.

Raafat noted that the recent gold decline reflects a liquidity crunch and temporary shifts in global financial markets, rather than a devaluation of gold as a savings asset. Historically, periods of sharp declines often present long-term buying opportunities for investors.