A. SREENIVASA REDDY (ABU DHABI)

Gold fell 12% in March to close at $4,608 per ounce, marking its weakest monthly performance since June 2013, although it still delivered a year-to-date return of 5.5%, according to the World Gold Council (WGC).

The sharp decline was driven primarily by financial market dynamics rather than underlying fundamentals, the WGC said, noting that “deleveraging and liquidity dynamics, not fundamentals, led the March sell-off in gold.”

A key factor behind the fall was heavy outflows from gold-backed exchange-traded funds (ETFs). Global gold ETFs shed about $12 billion, equivalent to 84 tonnes, during the month, led largely by North America and Europe.

The report explained that as investors pulled money out of these funds, it created selling pressure on gold prices. At the same time, broader market deleveraging—where investors reduce borrowing and sell assets to raise cash—added to the downward momentum.

“Deleveraging by multi-asset investors likely generated incremental selling in gold as positions were reduced to meet liquidity needs,” the WGC said.

This wave of selling was also linked to weakness in global equity markets, where widespread declines prompted investors to liquidate holdings across asset classes, including gold, to manage risks and meet margin requirements.

Bond market movements added further pressure. Rising bond yields—essentially the returns investors earn on government debt—made gold less attractive, as it does not pay interest. In simple terms, when safer assets like bonds start offering better returns, some investors shift money away from gold.

Despite heightened geopolitical tensions and inflation concerns, which would typically support gold prices, the report noted that liquidity needs dominated market behaviour.

“Prices rise only when incremental buyers exceed sellers. In March, deleveraging and liquidity needs tilted that balance in favour of sellers,” the WGC said.

Regional factors, including disruptions in the Middle East, had only a limited impact on global prices. While travel disruptions reduced tourist demand for jewellery and small bars, particularly in markets such as Dubai, these effects were marginal.

Trading volumes in Dubai increased during the period, but remained insufficient to influence international gold prices, the report added.