(Yicai) Oct. 23 -- Industry analysts believe that the short-term decline in gold prices does not mark the end of the precious metal's long-term bull market.

International gold prices fell 5.3 percent to USD4,124.36 on Oct. 21, experiencing the largest single-day drop of 6 percent since April 2013. As a result, Chinese gold futures contracts expiring in December declined 4.2 percent to CNY952.56 (USD133.70) yesterday.

The sharp drop in gold prices was due to easing trade tensions and geopolitical issues, combined with a rebound in the US dollar index and a profit-taking attitude by investors, according to industry insiders.

The sharp fluctuations in gold prices may have been triggered by the progress in the ceasefire agreement between Russia and Ukraine, a potential easing of tariff-related disruptions, expectations for an end to the US government shutdown, and the excessive short-term rise in gold prices, Pan Jun, an investment manager at Cheese Fund, told Yicai.

The short-term drop in gold prices after Oct. 20 can be attributed to two main reasons, said Li Qian, an investment advisor at Huiyan Zhitou Technology. The first is that the short-term surge in prices was excessive, calling for a technical correction. The second is that the potential resolution of the Russia-Ukraine conflict could exert a suppressive effect on gold prices.

Compared to that in 2011, this gold bull market is supported by factors such as significant purchases of the precious metal by global central banks, geopolitical uncertainties, and the weakening of the US dollar's credibility in a high-debt international environment, Pan noted. 

The core logic supporting this rally has not changed, and gold prices are expected to continue to reach new highs in the medium to long term, despite the possibility of some short-term fluctuations, he predicted.

Gold's upward momentum is expected to continue until 2026, mainly because of gold purchases by central banks, ongoing fiscal concerns in the United States, and expectations for further monetary easing, according to a recent commodity outlook report by HSBC Holdings. Europe's largest lender predicted gold prices to reach USD5,000 per ounce next year.

The trend of major central banks buying gold is expected to persist, according to Li Mingyu, deputy director of Xinhu Futures Research Institute and senior gold investment analyst.

This, coupled with abundant global liquidity and the irreversible and potential acceleration of the 'de-dollarization,' will likely keep gold prices in a relatively strong position in the future, Li Mingyu told Yicai.

The Federal Reserve has lowered interest rates as expected, Liu Tingyu, fund manager of Yongying Gold Stock Exchange Traded Fund, told Yicai. As the policy rhythm progresses, market expectations for further rate cuts will gradually become clearer, providing critical support for gold, he added.

More critically, the trend of global 'de-dollarization' is intensifying, and the weakening independence of the Fed, along with rising deficit rates, is further eroding the credibility of the US dollar and US Treasury bonds, Liu pointed out.

Editor: Futura Costaglione