4 reasons explain the decline in gold and silver prices despite the escalation of war in the Middle East
Gold and silver prices fell in global markets on Monday, despite the escalation of geopolitical tensions in the Middle East, leaving investors confused, as it is traditionally known that the value of Safe assets rise in times of crisis.
As of 19:50 GMT, Gold prices rose by approximately 1% to $5,135 per ounce, while silver prices rose by 2%, recording $86 per ounce.
Has the traditional rule changed?
Precious metal prices usually rise during periods of conflict, as investors resort to safe assets. But this time the situation was reversed. While this shift may be seen as a departure from the established rules of the market, there are 4 main reasons that explain the reasons for the decline in gold and silver prices despite the ongoing war in the Middle East.
Profit taking after a historic rise
One of the main reasons for this decline is profit taking. Gold witnessed a significant rise in the months preceding the current crisis, making many investors achieve significant gains. With stock markets under pressure following the jump in oil prices, some investors sold part of their gold holdings to provide liquidity and offset losses in other sectors. This type of selling is not uncommon during periods of market turmoil, when liquidity becomes a top priority.
Dollar Strength
At the same time, the strength of the US dollar strengthened as investors hoarded cash during market turmoil. A strong dollar tends to negatively impact gold because it makes it more expensive for buyers using other currencies.
Rising US Treasury yields have also reduced the attractiveness of non-income-producing assets such as gold. Expectations that the Federal Reserve will delay cutting interest rates if inflation remains high have added to these pressures.
High profit margins stifle speculation
Tighter trading conditions were another factor weighing on precious metals markets. Earlier, the Chicago Mercantile Exchange Group raised margin requirements for gold and silver futures contracts amid sharp volatility. Higher profit margins mean that traders have to hold more cash to hold their leveraged positions, prompting some speculators to exit the market. This has reduced short-term momentum in precious metal prices.
Rumors of central banks selling gold
Rumors circulating in the market about the possibility of central banks selling gold have affected market sentiment. If central banks sell part of their reserves to increase liquidity during periods of market turmoil, this increases supply in the market, a factor that may put pressure on prices even if demand remains strong.
Gold prices, where to?
Analysts say that the recent decline does not necessarily indicate a shift in the long-term outlook for gold prices. Rather, the current movements appear to reflect short-term fluctuations, as investors balance the demand for safe havens with the need for increased liquidity as global markets react to the sharp rise in oil prices.
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For the time being, precious metal prices are likely to remain sensitive to developments in the Middle East. This has resulted in a significant increase in Oil prices have already caused turmoil in global markets, with standard Brent crude jumping by about 17% to more than $105 a barrel, while US West Texas Intermediate crude rose to nearly $107, with increasing fears of supply disruptions amid tensions in the region.
Markets are extremely concerned about the possibility of disruptions to shipments through the Strait of Hormuz, one of the most important oil transit corridors in the world. The sharp rise in energy prices has roiled global stock markets and raised new concerns about inflation.
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