Gold prices declined sharply toward the $5,000-an-ounce level on Tuesday as a stronger US dollar and prospects of higher interest rates weighed on the haven metal.
Spot gold fell as much as 6% to nearly $5,018 an ounce, a dramatic reversal from the one-month high above $5,400 an ounce set the previous session. Silver also plunged almost 12% to under $80 an ounce.
Bullion has now wiped out all of its gains from last week, though it remains up by more than 17% on the year, as is silver.
The latest drawdown, according to some analysts, was driven by a shift into more attractive assets as tensions in the Middle East continue to escalate and some potential headwinds for the metal emerge.
With the Iranian conflict entering its fourth day, the US dollar rose above a one-month peak, making the dollar‑priced bullion less affordable for holders of other currencies.
Also weighing on gold is the decreased chances of a Federal Reserve rate cut, as the Middle East conflict has already resulted in a spike in energy prices, which could keep inflation elevated.
Flight to liquidity
“The move lower in gold appears to be driven by a flight to liquidity – a flight to cash. We have a strong dollar and bond yields trading higher,” said Bob Haberkorn, senior market strategist at RJO Futures.
“However, this dip in prices is likely to be short‑lived, and flight to safety flows driven by geopolitical risk should support higher gold and silver prices,” he added.
Longer term, the market remains largely bullish on gold, with major banks such as BNP and JPMorgan forecasting prices to rally beyond $6,000 by the end of this year.
(With files from Bloomberg and Reuters)
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Gold prices declined sharply toward the $5,000-an-ounce level on Tuesday as a stronger US dollar and prospects of higher interest rates weighed on the haven metal.
Spot gold fell as much as 6% to nearly $5,018 an ounce, a dramatic reversal from the one-month high above $5,400 an ounce set the previous session. Silver also plunged almost 12% to under $80 an ounce.
Bullion has now wiped out all of its gains from last week, though it remains up by more than 17% on the year, as is silver.
The latest drawdown, according to some analysts, was driven by a shift into more attractive assets as tensions in the Middle East continue to escalate and some potential headwinds for the metal emerge.
With the Iranian conflict entering its fourth day, the US dollar rose above a one-month peak, making the dollar‑priced bullion less affordable for holders of other currencies.
Also weighing on gold is the decreased chances of a Federal Reserve rate cut, as the Middle East conflict has already resulted in a spike in energy prices, which could keep inflation elevated.
Flight to liquidity
“The move lower in gold appears to be driven by a flight to liquidity – a flight to cash. We have a strong dollar and bond yields trading higher,” said Bob Haberkorn, senior market strategist at RJO Futures.
“However, this dip in prices is likely to be short‑lived, and flight to safety flows driven by geopolitical risk should support higher gold and silver prices,” he added.
Longer term, the market remains largely bullish on gold, with major banks such as BNP and JPMorgan forecasting prices to rally beyond $6,000 by the end of this year.
(With files from Bloomberg and Reuters)