Investor Shift Out of Safe Havens Sends Gold Prices Down
Gold prices tumbled more than 2%, reaching a one-week low as anxieties surrounding a wider Middle East conflict eased. This shift in investor sentiment led to a reduction in safe-haven buying and a move towards riskier assets like stocks. Spot gold dropped 2.3% to $2,336.29 per ounce, poised to record its largest single-day decline in over a year. U.S. gold futures mirrored this trend, falling 2.7% to $2,349.70.
Reduced Risk Appetite Weakens Gold Demand
“Some of the immediate retaliation risk in the Middle East has been withdrawn, which has sparked some selling activity in gold,” explained Daniel Ghali, a commodity strategist at TD Securities. "However, the key question remains: how much further downside is there for gold prices?" Tehran downplayed Israel's retaliatory drone strike, seemingly aiming to prevent regional escalation. This move by Iran contributed to the decline in gold demand as a safe-haven asset.
Stronger Equities Further Pressure Gold
Adding pressure to gold prices was the positive opening of Wall Street's main indexes. This rise in stock prices reduced investor demand for non-interest-bearing assets like gold, traditionally viewed as a safe haven during market uncertainty.
Record Highs Not Out of the Picture
Geopolitical tensions, coupled with substantial central bank purchases, had driven gold prices to a record high of $2,431.29 on April 12. Nonetheless, investor focus has shifted towards the upcoming release of the U.S. personal consumption expenditures (PCE) report on Friday. This data will offer clues regarding the likelihood of U.S. interest rate cuts.
Chicago Federal Reserve President Austan Goolsbee highlighted on Friday that progress in curbing inflation had "stalled" this year. This statement aligns with a recent shift among officials, who are moving away from their earlier focus on the need for imminent rate cuts.
"Gold could revisit its all-time highs if the PCE report unexpectedly reveals cooling inflation," Ghali added. "We still anticipate resilient buying activity from Asia, where gold is seen as a hedge against currency depreciation."
Other Metals Witness Sharp Declines
Other precious metals also experienced significant declines. Spot silver plummeted 4.6% to $27.35 per ounce. Platinum and palladium dropped 1% and 1.8% respectively, settling at $922.00 and $1,008.25 per ounce. Analysts at Heraeus Metals noted in a report, "Any improvement in internal combustion engine vehicle sales compared to the market share of battery electric vehicles could bolster the price of palladium."
