Precious metals markets saw a notable decline in trading on Friday, with both gold and silver continuing their downward trend, directly impacted by the strong rise of the US dollar in global markets. This decline erased most of the gains made earlier in the week, reflecting a prevailing sense of caution among investors.
In trading details, spot gold fell 0.7% to $4,735.99 per ounce, after dropping 4% in the previous session. U.S. gold futures for April delivery also declined, falling 2.8% to settle at $4,752.40 per ounce. Silver was not immune to this pressure, dropping 3.2% in spot trading to $68.97 per ounce, its lowest level in over six weeks.
General context: A historical inverse relationship between the dollar and gold
This decline is primarily due to the long-established inverse relationship between the US dollar and gold. Historically, gold is priced in dollars on international markets, and when the value of the US currency rises, gold becomes more expensive for buyers using other currencies, leading to decreased demand and consequently a lower price. The dollar index, which measures the greenback's performance against a basket of major currencies, is the most important indicator monitored by investors in the metals market.
The dollar's current strength is driven by expectations surrounding the US Federal Reserve's monetary policy. With inflation concerns persisting, the central bank is likely to maintain high interest rates, making the dollar a more attractive investment. Furthermore, rising US Treasury yields increase the opportunity cost of holding gold, which does not generate interest, leading investors to favor bonds over the precious metal.
Expected impact on global and local markets
Fluctuations in gold and silver prices have far-reaching implications. Internationally, gold is seen as a safe haven during times of economic and geopolitical turmoil, and its decline may signal a shift in investor sentiment toward riskier assets or greater confidence in the stability of the US economy. This decline also affects central banks worldwide, which hold substantial gold reserves as part of their assets.
At the regional and local levels, the decline in gold prices directly impacts consumers in the jewelry market, potentially encouraging them to buy. For individual investors, this drop could represent an opportunity to increase their holdings of the precious metal at lower prices. Regarding other metals, platinum fell by 3.6% to $1,916.45, while palladium rose by 1.3% to $1,638.25, reflecting their sensitivity not only to monetary factors but also to industrial demand, particularly in the automotive sector.
