Precious metal prices are rapidly declining. The reason is the escalation of the conflict in the Middle East, which led to an increase in energy prices and a revision of investor expectations regarding easing monetary policy.
The decline accelerated following reports of a possible US ground operation in Iran. Against this background, the dollar and bond yields strengthened. Traders began pricing in a 50% chance of a rate hike by October due to fears that a protracted conflict would accelerate inflation. For gold, which does not generate interest income, this is a serious negative factor.
According to sources involved in direct contacts with Tehran, Iranian officials are no longer discussing the possibility of opening the Strait of Hormuz, focusing on survival. The Pentagon, in turn, is sending three warships and additional marine forces to the region.
Since the beginning of the US and Israeli military operation against Iran gold falls every week. Investors are taking profits as the dollar strengthens and stock markets sell off on fears that rising energy prices will hit the global economy and add to inflationary pressures.
StoneX Financial analyst Rona O’Connell attributes the correction to a combination of profit taking and position liquidation amid revised monetary policy expectations. Prices above $5,200 have attracted many buyers, leaving the market vulnerable. When the decline began, stop losses were triggered, accelerating the fall. Additional pressure was created by technical indicators, especially moving averages.
Forced sales associated with falling stock indices could also have contributed to the collapse. Reduced purchases by central banks and outflows from exchange-traded funds, according to Bloomberg, increased the negative mood. Gold-backed ETFs lost funds for the third week in a row, with inventories falling by more than 60 tons.
Despite the rollback, since the beginning of the year gold remains in positive territory by about 4%. At the end of January, the metal updated its historical record, approaching $5,600. This was fueled by investor enthusiasm, active purchases by central banks and concerns about the independence of the Federal Reserve under the new administration.
Source: Bloomberg
Image: Bloomberg
