On May 18th, the international gold price extended its decline from the previous week. Spot gold once fell below the critical psychological level of $4,500 per ounce, touching a low of $4,480.01, marking its first dip below this threshold since late March. Market analysts attribute this round of gold's decline to a confluence of "renewed pressure from macro tightening expectations" and a "precipitous drop in physical buying." Specifically, stronger-than-expected U.S. inflation data has reinforced expectations for interest rate hikes. Data shows the U.S. Consumer Price Index (CPI) rose 3.8% year-over-year in April, exceeding the market forecast of 3.7%. Simultaneously, the Producer Price Index (PPI) increased 6.0% year-on-year, far surpassing the expected 4.9%. Guosen Futures noted that as expectations for a rate hike intensified, the U.S. Dollar Index rose for four consecutive days, breaking past the 99 mark, while the 10-year Treasury yield surged nearly 14 basis points to 4.596%, its largest single-day gain in a year. Tighter interest rate expectations directly pressure non-yielding assets like precious metals. Concurrently, future policy remains uncertain, coinciding with a sensitive period of leadership transition at the Federal Reserve as incoming Chair Warsh prepares to officially assume his role. Everbright Futures mentioned in a research report that the market is concerned his first official remarks, against the backdrop of high inflation, could be hawkish, thereby dampening liquidity expectations. Furthermore, India's significant hike in gold and silver import duties was a direct trigger for the sell-off. On May 13th, the Indian government announced an increase in import duties on gold and silver from 6% to 15%, effective immediately. As the world's second-largest gold consumer and largest silver importer, India imported approximately 860 tonnes of gold in 2025, according to World Gold Council data. Post-duty hike, domestic gold prices in India showed a discount of over $200 per ounce compared to the London market. Qu Rui, a senior associate director at Dongfang Jin Cheng Research and Development Department, summarized that gold's continued weakness stems partly from the potential escalation of U.S.-Iran tensions, which has revived global inflation expectations, pressuring gold prices. On the other hand, the smooth appointment of Warsh as the new Fed Chair, combined with the stronger-than-expected U.S. April inflation, has raised market concerns about significant changes at the June FOMC meeting and reduced expectations for rate cuts, creating further disturbances for gold. During this broad decline, silver fell significantly more than gold. On May 18th, spot silver fell below $74, dropping 2.29%; COMEX silver futures once approached $74, with a decline exceeding 4%. On May 15th, silver plummeted 9.03% in a single day, marking its largest daily drop since 2020. Xia Yingying, head of the precious metals research group at Nanhua Futures, stated in an interview that this sharp decline in silver resulted from a combination of factors: a correction in macro expectations, repeated geopolitical tensions in the Middle East, and a technical breakdown in silver prices. "From a macro perspective, high energy prices and Middle East tensions have pushed up expectations for a Fed rate hike in 2027. On the news front, profit-taking in AI and tech stocks led to a retreat in risk appetite, causing premiums on strategic commodities like silver and copper to unwind. From a supply perspective, London silver's previous attempt to break above $83 was disrupted by Peru's energy crisis, but subsequent financial aid failed to have a substantial impact. After the supply narrative weakened, it triggered a stampede following a false breakout in silver. From a market structure perspective, the silver market is smaller and more leveraged, making it prone to sell-offs," Xia Yingying explained. Market fund flows corroborate this view. As of the close on May 15th, open interest in the main Shanghai silver futures contract was 133,800 lots, a decrease of 11.9% from the previous trading day. Both long and short positions were liquidated, with the top 20 long positions in the main contract reducing holdings by 6,104 lots and short positions by 6,042 lots on the preceding trading day. The Thailand Futures Exchange even announced a suspension of online silver futures trading, reflecting the extreme volatility in the silver market. Several institutions believe that in the context of rising Fed rate hike expectations, both gold and silver prices will face pressure in the short term, but they remain optimistic for the medium to long term. JPMorgan Chase revised down its 2026 average gold price forecast from $5,708 to $5,243 per ounce but still expects prices to recover above $6,000 by year-end. For silver, the bank anticipates a bottom to form in the $75-$80 range over the next few quarters, with a potential recovery to $90 by early 2027. Goldman Sachs' commodities team, in a report dated May 16th, maintained its year-end 2026 gold price target of $5,400, stating that central bank gold buying demand is expected to rebound in the second half of the year, with estimated monthly purchases reaching 60 tonnes. The report also noted that if rate hike expectations intensify further, gold could test $4,400 in the short term. Xia Yingying maintains her core view of being bullish on gold and silver in the medium to long term but acknowledges that the short term will likely involve a period of volatile consolidation, awaiting further clarity on the macro path. She believes that regardless of whether the U.S. ultimately heads towards "stagflation" or "rate cuts," both paths point to a higher price floor for gold. The current market is in a chaotic period before this "either-or" choice is made. "A Fed rate hike remains a low-probability event, but the continuous postponement of rate cuts means precious metals still lack a clear, trend-driving catalyst." Simultaneously, risks to monitor include: if U.S. core PCE inflation rises further, the market may reprice the risk of "additional rate hikes," potentially pushing gold to test key support levels; a slowdown in the pace of central bank gold purchases could weaken demand-side support; and if a tightening of U.S. dollar liquidity triggers systemic deleveraging, gold could temporarily lose its "safe-haven" function and decline in tandem with risk assets. Silver, possessing both industrial and financial attributes, inherently exhibits higher volatility than gold. The high volatility associated with investment demand from its financial attribute means silver prices are primarily driven by investment flows and generally trend in sync with gold prices. However, elevated prices may accelerate the global development of "silver-reduction" technologies in photovoltaics, imposing constraints on silver's price appreciation.
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