Despite escalating Middle East conflicts, gold prices experienced a significant downturn this week, dropping over 8% and marking the largest weekly decline since early 2020. On Friday, spot gold rebounded approximately 1.4% to $4715 per ounce, with futures contracts also rising around 2.4%, but this was insufficient to reverse the week's losses.
The ongoing military conflicts in the Middle East have fueled market concerns over rising energy prices and heightened inflation pressures. This week, crude oil prices surged to their highest levels in nearly four years following attacks on key energy infrastructure in the region.
In response to mounting inflation signals, major central banks globally have adopted a decidedly hawkish monetary policy stance. The Reserve Bank of Australia has announced an interest rate hike, while the US Federal Reserve, the European Central Bank, the Swiss National Bank, and the Bank of Japan have maintained their existing interest rate policies.
These monetary authorities have uniformly indicated that interest rate cuts are highly unlikely in the foreseeable future. This signal has dealt a significant blow to gold prices, as lower borrowing costs typically boost non-yielding precious metals.
The Federal Reserve held rates steady at its meeting this week but simultaneously warned that inflationary pressures could intensify further. While gold has historically been viewed as an inflation hedge, rising interest rates relatively increase the attractiveness of yield-bearing investments.
A weaker dollar on Friday offered a brief respite for the precious metals market. Several central banks signaling potential rate hikes have pushed their respective currencies higher against the greenback.
Silver Prices Saw a Sharper Decline
Analysts at OCBC noted that silver is more sensitive to dollar fluctuations and overall market risk appetite compared to gold. The institution stated it would "modestly revise down" its silver price forecasts based on current market dynamics.
Furthermore, concerns about a potential global economic slowdown are weighing on silver, which could lead to reduced industrial demand. Silver plays a crucial role in solar energy systems and various electronic applications.
Platinum prices fell 2.9% this week but recovered 2.1% on Friday, trading around $2016 per ounce.
Market Expert Views
Nicholas Frappell, Global Institutional Market Head at ABC Refinery, told Reuters that on a weekly basis, gold successfully held key technical support levels. He believes gold may...