Precious metals experienced a sharp decline in price on Thursday, with both gold and silver falling amidst a broad market sell-off.
This pressure was driven by the dollar’s rise to almost a two-week high and indications of a relaxation in US-China trade tensions.
Silver lost 10% since its last close as prices plunged below $74 per ounce earlier on Thursday.
Meanwhile, gold, which rebounded above $5,100 per ounce on Wednesday, also fell sharply below $4,900 per ounce.
“Dollar-denominated precious metals, including silver lose ground amid a stronger US Dollar (USD), fueled by hawkish signals from the Federal Reserve (Fed) and expectations of a slower pace of US rate cuts,” Akhtar Faruqui, editor at FXStreet, said in a report.
On Thursday, the dollar index climbed to its highest point in nearly two weeks. This strength in the greenback increased the cost of dollar-denominated gold for investors holding other currencies.
At the time of writing, the COMEX gold contract was at $4,912.96 per ounce, down 0.8%, while silver prices were 8.6% lower at $76.970 per ounce.
Fed hawkish tone
Federal Reserve Governor Lisa Cook emphasised that she would not support another interest rate cut until there is more definite proof of easing inflation.
She highlighted that the stagnation in disinflation is a greater concern than any softness in the labor market.
Kevin Warsh’s nomination for Fed chair was also a factor for investors, who noted his inclination towards a reduced balance sheet and a more cautious stance on lowering interest rates.
Following the Fed’s decision to pause rate hikes in January and the nomination of Warsh, market expectations for a rate cut have diminished.
According to the CME FedWatch tool, financial markets are now pricing in a nearly 46% chance of a rate reduction at the June policy meeting.
The sharp decline in precious metal prices is expected by analysts to be followed by continued volatility.
“We will maintain higher volatility environments than we had historically, but not what we’ve had over the last few days unless we run up another spec bubble,” said Niklas Westermark, head of EMEA commodities trading at BofA.
Downside potential seen
So far, gold and silver prices have been very volatile since the beginning of the week.
Prices rebounded sharply from Friday and Monday’s losses, but plunged again on Thursday.
Both metals may fall further as last week’s record high could have been the peak, according to Mike McGlone, senior market strategist at Bloomberg Intelligence.
While a surge to $6,000 an ounce for gold is not entirely dismissed, McGlone considers a test of $4,000 an ounce support as a more probable scenario.
Furthermore, he anticipates a potential drop in silver prices, possibly as low as $50 an ounce.
“Gold and silver going parabolic in January have the earmarks of 2026 being a down year as part of a peaking process,” he said in the note.
Momentum could carry the store of value as high as $6,000 an ounce, but normal reversion points back toward $4,000.
McGlone suggests that while further advances in equity markets could pressure gold prices lower, gold may relatively outperform in the event of a broad market downturn, even if its price is already subdued.
He added that the gold/silver ratio is unlikely to remain below 50. The recent sharp drop in silver on Friday and Monday has brought the ratio back towards its historical average, currently sitting at 56.6 points.
This year’s $121.65 high may be revisited, but reversion toward $50 appears as a normal path for the commodity known as the ‘devil’s metal,’ due to its volatility.
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