On Wednesday, precious metals faced significant losses, with spot gold dropping 2.4% to approximately $4,161.63 per ounce and spot silver falling 2% to $64.01 per ounce. This downturn is attributed to shifting market focus back to interest rates and inflation risks, as highlighted by Ewa Manthey, a commodities strategist at ING.
She noted that geopolitical tensions, particularly in the Middle East, are pushing oil prices higher, which in turn raises inflation expectations and reinforces the likelihood of central banks maintaining tighter monetary policies.
Currently, money markets indicate a 98.2% probability that the Federal Reserve will keep interest rates steady at its upcoming meeting, with a 40% chance of a hike by October. The European Central Bank is also expected to raise rates by 25 basis points soon.
Analysts suggest that the recent sell-off in metals is part of a broader market deleveraging, where overextended positions are being liquidated. Raj Abrol, CEO of Galytix, emphasized that rising real yields and a stronger dollar are increasing the cost of capital, further pressuring gold and silver prices.
Despite the current bearish sentiment, some analysts, like Alex King from Wellington Management, believe that gold's long-term fundamentals remain strong, supported by central bank demand and potential shifts in reserve allocations. However, Citi analysts have warned that gold could decline an additional 20% by autumn, indicating a cautious outlook for the near term