Yesterday, amid increased market nervousness, gold slid below the $1,900 mark for the first time since February 25. What was the main driving force behind such a steep nosedive?
On Tuesday, gold futures plunged to the intraday low of $1,888.30, settling above the $1,900 barrier at the close of the trading day.
So, the price closed at $1,912.20, the low unseen in 2 weeks, down by $27.60, or 1,4%, from Monday.
Generally speaking, the bullion completely wiped out the profit it received last week in just 24 hours. As a reminder, the asset rose by 1.3% in the previous week amid increased geopolitical developments.
Analysts name 2 possible reasons for a bearish gold market this week.
De-escalation of the conflict is on the horizon
On March 29, Russia and Ukraine held another round of peace talks in Turkey. Gold prices eased as risk appetite improved on reported progress in talks between the parties.
"Gold prices plunged after Russia-Ukraine peace talks yielded some progress. For a moment, it looked like the biggest geopolitical risk could be poised for a major de-escalation, and the safe-haven trade was quickly abandoned," OANDA senior market analyst Edward Moya commented on the situation.
The plunge came after the announcement by Russia's Deputy Minister of Defense Alexander Fomin who told the press that Moscow decided to fundamentally cut back military activity in the direction of Kyiv and Chernihiv.
In addition, speculation is growing as to possible peace talks between President Putin and President Zelensky, which is also weighing on safe-haven assets as risk appetite improves.
Yesterday, the US stock market saw a bull run in the face of a possible de-escalation of the Russia-Ukraine conflict. Thus, the Dow Jones rose by about 1%, the S&P 500 increased by 1.2%, and the NASDAQ gained some 1.8%.
Hawkish pressure
Additional pressure on gold comes from the macroeconomic front.
Last week, Chairman Jerome Powell hinted at a hawkish Fed at the upcoming meetings.
In March, the US central bank raised interest rates by 25 basis points. However, most FOMC members believe this is not enough to curb raging inflation amid geopolitical developments in Eastern Europe. They insist on a 0.50% rate hike at the next meeting.
Market concerns are growing that the hawkish rhetoric of the Federal Reserve and aggressive monetary policy tightening could severely harm the American economy.
Yesterday, the 2-year/10-year Treasury yield curve changed for the first time since September 2019, indicating a possible economic downturn in the US.
Nevertheless, it was a short-term reversal, followed by Federal Reserve Bank of Philadelphia President Patrick Harker's statement. So, gold simply had no time to take advantage of the worrisome event.
Mr. Harker is positive that the US can avoid a recession, even amid troubling signs.
In the face of inflation levels running at a 40-year high, Harker says the Fed is likely to embark on a rate-hiking cycle, with possibly as high as half a percentage point.
