A Saxo Bank strategist has released a new market analysis, noting that gold prices recently fell below the key support level of $4,000 per ounce, with silver also slipping below the $60 mark, indicating a significant shift to bearish sentiment in the precious metals market. The primary short-term factors driving the price weakness are the persistent strength of the US dollar, coupled with the previously hawkish policy signals from the Federal Open Market Committee. However, several other negative factors weighing on precious metals are gradually easing.
Investors are currently widely reducing or even liquidating their precious metals holdings. Gold has seen a substantial correction from its yearly highs, and a technical breakdown has further amplified selling pressure. While weaker crude oil prices have reduced inflation and rate hike expectations, providing some support, major domestic banks in a large Asian nation tightening personal precious metals trading has introduced additional constraints. In the short term, precious metals performance is still primarily driven by fund positioning and technical patterns, with the effects of improving fundamentals not yet apparent.
Precious Metals Weaken Significantly, Annual Returns Diverge
The market analysis report was released on Thursday. The strategist stated that gold and silver have fully entered a weak trend, with market participants reducing their precious metals exposure and some investors exiting entirely.
The analyst noted: "Measured on a total return basis, gold is down 8.4% year-to-date, though it remains up 18.5% over a twelve-month period. Silver has corrected much more sharply than gold, down 19% year-to-date, but still up 56% over the past twelve months."
This decline has been driven by a week-long rally in the US dollar, with the dollar index hitting a fresh thirteen-month high of 101.8000 on Wednesday. The hawkish monetary policy stance signaled by the Federal Open Market Committee last week continues to provide upward support for the dollar, with markets re-pricing expectations for further US rate hikes later this year. As gold and silver do not generate interest income, rising rate hike expectations increase the opportunity cost of holding them. Combined with currently fragile investor confidence, this dual pressure is weighing on prices.
Gold's Technical Breakdown Triggers Continued Long Liquidation
The strategist warned that if gold decisively breaks below the $4,000 level, long positions would likely continue to be liquidated. Since hitting a record high above $5,600 per ounce in January, gold has corrected by approximately 26%. A breach of this support level would accelerate selling.
He stated: "A breakdown of key technical levels further dampens market bullish sentiment. Even though the overall negative macro environment has eased somewhat over the past week, the market continues to reduce exposure. The two core factors currently suppressing precious metals remain the strong US dollar and persistent outflows from gold ETFs. Speculative long positioning had already been significantly reduced previously."
Some Negative Factors Gradually Fade, Inflation and Rate Hike Expectations Cool
The strategist indicated that the influence of several secondary factors that previously dragged gold prices lower is continuously diminishing.
He wrote in the analysis: "A sharp decline in international crude oil prices has alleviated market concerns about persistently high inflation, leading markets to perceive less necessity for the Federal Reserve to further tighten monetary policy. This shift is clearly reflected in federal funds rate futures, where expectations for additional rate hikes are continuously fading, and long-term US Treasury yields are also moving lower."
He added that, influenced by recent sharp volatility and consecutive price declines in precious metals, several major commercial banks in a large Asian nation have tightened personal precious metals trading services for ordinary individuals. Control measures include suspending the opening of new precious metals trading accounts, shutting down related intermediary trading channels, and significantly raising trading margin requirements. These actions aim to restrict ordinary investors from engaging in highly leveraged speculative operations, thereby suppressing market buying power to some extent.
Outlook Summary
Considering various market conditions, the negative macro fundamental environment for precious metals is moderating, but price action remains weak.
The strategist said: "In the short term, the market needs to see selling in gold ETFs cease and the upward momentum of the US dollar fade before bargain-hunting funds regain the confidence to re-enter. Until then, the price action of gold and silver will be more dominated by positioning structure and technical patterns. Improving fundamentals are unlikely to immediately reverse the trend."
Overall, the short-term correction in precious metals is expected to continue. Investors need to continuously monitor three core indicators: US dollar trends, US Treasury yields, and gold ETF fund flows. A clear window for strategic positioning will only emerge once negative signals are fully exhausted.
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