Global precious metals markets witnessed a significant decline during today's trading, with gold prices falling by nearly 2%, influenced by a number of economic and technical factors, most notably the recovery of the US dollar index and weak liquidity in major Asian markets.
Details of gold and precious metals trading
According to global market data, spot gold fell 1.9% to $4,895.44 an ounce, after initially dropping 1% earlier in the session. US gold futures for April delivery also declined, falling 2.6% to settle at $4,917.70 an ounce.
Gold wasn't the only loser; silver also suffered heavy losses, dropping 5% in spot trading to $72.66 an ounce, after an earlier decline of over 3%. The downward trend extended to the platinum group, with platinum falling 2.6% to $1,997.57 an ounce, while palladium dropped 1.5% to $1,698.10.
The impact of the dollar and Asian liquidity
This selling pressure is primarily attributed to the 0.2% rise in the dollar index against a basket of major currencies. It is a well-established economic principle that there is an inverse relationship between the dollar and gold; when the value of the US currency rises, dollar-denominated bullion becomes more expensive for holders of other currencies, thus reducing global demand and putting downward pressure on prices.
Furthermore, seasonal factors played a significant role in the subdued trading, as these movements coincided with the Lunar New Year holiday, which led to market closures in mainland China, Hong Kong, Singapore, Taiwan, and South Korea. The absence of Asian buyers—who represent a substantial force in the physical gold market—directly contributed to the low liquidity, making markets more susceptible to sharp price fluctuations, even with moderately sized sell orders.
Interest rate forecasts and monetary policy
On the monetary policy front, markets are still awaiting the Federal Reserve's (the US central bank) next move. The CME Group's FedWatch tool indicates that current expectations favor the Fed cutting interest rates three times by 25 basis points this year.
These expectations are of paramount importance to investors, as higher interest rates increase the opportunity cost of holding gold, which does not generate a periodic return, typically driving investors toward bonds or dollar deposits. However, any indication of monetary policy easing could restore the precious metal's appeal as a safe haven against inflation and market volatility in the near future.
