Gold crashes 24% from record high: Should you buy?
What's the story
Gold prices have witnessed a sharp decline, falling nearly 12% in the June quarter. This is on track to be the steepest quarterly fall since December 2016. From its record high of $5,417 an ounce, the precious metal has now fallen by some 24%. The latest drop highlights a paradox of financial markets: even safe-haven assets can come under pressure during broader market stress.
Market factors
Technology selloff triggers gold liquidation
The recent decline in gold prices can be attributed to a massive selloff in global technology stocks. As AI-driven equities pull back from record highs, investors facing losses have increasingly sold gold to raise liquidity and meet margin requirements elsewhere in their portfolios. Meanwhile, expectations of tighter monetary policy in the US have strengthened the dollar and reduced the appeal of non-yielding assets like gold.
Rate impact
Fed's hawkish stance fuels rate hike bets
Investors are increasingly betting that the Federal Reserve may have to raise interest rates further to contain inflation. Market pricing tracked by CME's FedWatch suggests traders now expect as many as three rate hikes this year. Those expectations have intensified after the Fed signaled growing concern over inflation and new Federal Reserve Chair Kevin Warsh adopted a notably hawkish tone. Higher interest rates typically reduce gold's attractiveness as it doesn't generate income, prompting investors to look for better returns elsewhere.
Tension effect
Geopolitical uncertainty fails to support gold prices
The decline in gold prices comes despite continued uncertainty over the fragile diplomatic understanding between the US and Iran. US President Donald Trump said on Tuesday that Iran had agreed to indefinite nuclear inspections, a claim Tehran disputed. Normally, such uncertainty would support safe-haven assets like gold. However, analysts say monetary policy concerns are currently outweighing geopolitical risks in determining gold's value.
Market reversal
Silver 47% below its all-time high of $117
Silver has fared even worse with a slump of around 17.6% during this quarter, its sharpest decline since mid-2022, and is now nearly 47% below its all-time high of $117 an ounce in January. The recent correction marks a sharp reversal for precious metals after an extraordinary rally over the past two years. As per analysts, gold could decline further in the short term if the US-Iran situation continues to stabilize and expectations of higher US interest rates strengthen.