Gold and Silver Tumble, Fed Pressure Again Haunts Market
Gold and silver prices fell sharply on Tuesday, after a sell-off in global technology stocks weighed on the precious metals market. US gold futures fell 1.3% to close at US$4,149.40 per troy ounce, while silver plunged more than 5% to end at US$62.07 per troy ounce. This weakness indicates that pressure is not limited to the stock market, but is also spreading to metal assets, previously considered safe havens during times of heightened uncertainty.
Pressure on gold is intensifying as the market begins to re-price the possibility of a Federal Reserve interest rate hike before the end of the year. Last week's Fed meeting, led by new Chairman Kevin Warsh, was interpreted by the market as a hawkish signal. Expectations of an interest rate hike make gold less attractive because precious metals offer no yield, while assets like US government bonds become more competitive when yields rise.
A strengthening US dollar is also a major pressure factor. Reuters reported that the dollar index rose to a 13-month high, supported by expectations of a Fed rate hike and demand for safe havens amid global market pressures. A stronger dollar makes gold more expensive for buyers using other currencies, thus suppressing global demand for the precious metal.
Wall Street's outlook on gold is also beginning to change. Bank of America believes the gold target of US$6,000 per troy ounce is increasingly difficult to achieve in the near term due to the persistently unfavourable inflationary environment and the potential for tighter monetary policy. Deutsche Bank also cut its gold forecast, with a new target of US$4,300 for the third quarter and US$4,800 for the fourth quarter. In a worst-case scenario, if the Fed raises interest rates three to four times, Deutsche Bank sees gold falling to around US$3,800 per troy ounce.
This situation is putting gold's reputation as a safe haven asset to the test again. Since the US-Iran war broke out in late February, gold has not always risen when risk increases. While the war pushed oil prices up, the market instead became concerned about higher inflation and tighter Fed policy. As a result, gold could come under pressure even though the geopolitical situation has not yet fully stabilized.
Looking ahead, investors will focus on the US Personal Consumption Expenditures (PCE) inflation data. This data is the Fed's favorite inflation indicator and will determine the next direction for gold, silver, the US dollar, and bond yields. If PCE prices rise again, pressure on gold and silver could potentially continue. However, if inflation begins to subside, the precious metals market has a chance to withstand the correction and attempt a technical rebound.
Source: Newsmaker.id
