Precious metals, particularly gold and silver, experienced a volatile trading session. Gold attempted to recover some of its earlier losses, while silver remained relatively stable. This movement followed widespread profit-taking and regulatory measures on global exchanges aimed at curbing excessive speculation, such as increased margin requirements on the Chicago Mercantile Exchange (CME). These measures raise the cost of holding open positions and reduce the appeal of short-term trading.
General context and performance of precious metals
Gold has historically been considered a safe haven for investors during times of economic uncertainty and geopolitical tensions. During financial crises, such as the 2008 financial crisis or the COVID-19 pandemic, demand for the precious metal surged as a hedge against inflation and the volatility of stock and currency markets. However, after periods of strong gains, markets often experience corrective movements driven by investors' desire to secure their profits, which explains the recent sell-offs. Gold prices are also directly influenced by the policies of central banks worldwide, which are among the largest holders of gold reserves, and any change in their buying or selling strategies can have a significant impact on the market.
The importance of the event and its expected impact
The significance of these fluctuations lies in their reflection of a reassessment of risks in global markets. One of the main factors putting downward pressure on gold prices is the strength of the US dollar. Historically, there has been an inverse relationship between the dollar and gold; when the dollar index rises, gold priced in dollars becomes more expensive for holders of other currencies, thus reducing demand. The strength of the dollar is directly influenced by expectations of the US Federal Reserve's monetary policy. Any hints of interest rate hikes to curb inflation strengthen the dollar and increase the opportunity cost of holding gold, which does not generate interest. Regionally, investors in the Middle East closely monitor gold prices due to its cultural and economic importance as a primary savings and investment vehicle.
A look at silver and other metals
Silver, sometimes called “poor man’s gold,” is affected by the same factors as gold, but it has a dual nature. Besides being a safe haven, silver is a vital industrial metal used in many advanced technology industries, such as solar panels, electronics, and electric vehicles. This means its price is influenced not only by monetary policies but also by the outlook for global economic growth and industrial demand. As for other precious metals, platinum and palladium have also seen declines, and they are closely linked to the automotive sector, where they are used in catalytic converters to reduce harmful emissions. Therefore, any anticipated slowdown in global car production negatively impacts their prices.
