Concerns about rising inflation are putting significant pressure on the precious metals market, causing gold prices to lose an important technical support threshold in the long term and drag down silver.
In the past two weeks, gold prices have continuously tested the support zone around the 200-day moving average (MA 200). By the last trading session of the week, this support level was officially broken. Spot gold prices fell to 4,327.40 USD/ounce, losing about 3% in the day and heading towards a week of more than 4% decline. This is also the lowest price range since the strong correction in March.
Silver is under even greater pressure when falling to 68.28 USD/ounce, losing more than 7% in the session and is on track to close the week with a decrease of about 9%.
According to analysts, the direct reason for the simultaneous weakening of gold and silver is that the US non-farm payroll report exceeded expectations. The US economy created 172,000 jobs in May, significantly higher than market forecasts.
This figure increases expectations that the US Federal Reserve (Fed) will continue to maintain a cautious monetary policy for a longer time to control inflation.
Mr. Jan Groen - Chief Economist in charge of the US at Societe Generale - said that the latest jobs report allows the Fed to focus more on the inflation control task in the upcoming policy meeting.
Some Fed officials may see job data as a signal that inflation risks have not yet eased," he said.
According to Mr. Phillip Streible - Market Strategy Director at Blue Line Futures, inflationary pressure is not only coming from the labor market but also appears in many other sectors of the economy.
Inflation is becoming an issue that the Fed can hardly ignore. This will continue to put pressure on gold and silver in the short term," he said.
However, many experts said that the current decrease is not a signal that the market is entering a prolonged downward price trend.
Mr. Streible said that speculation in the precious metals market has decreased significantly in recent months, thereby limiting the risk of out-of-control sell-offs.
In the short term, breaking support levels is a negative signal. However, for long-term investors, this may be an opportunity to accumulate as the fundamentals of gold have not changed," he said.
Sharing the same view, Mr. Robert Minter - ETF Strategy Director at global investment management company abrdn - said that each adjustment of gold prices can stimulate buying demand from central banks.
According to him, concerns related to global public debt and the need to diversify reserve assets are still creating a supporting foundation for the gold market.
I have not seen any signs that central banks are significantly reducing gold buying activities. This is still one of the most important supporting factors for the market," he said.
However, the short-term outlook is still assessed quite cautiously. Mr. Ole Hansen - Head of Commodity Strategy at Saxo Bank - said that the $4,099/ounce zone, equivalent to the bottom set in March, could become the next target if selling pressure continues to increase.
The focus of the market next week will be important US inflation data, including the consumer price index (CPI) and the producer price index (PPI). These figures are expected to reshape the Fed's interest rate expectations and thereby directly affect the developments of gold.
Mr. Fawad Razaqzada - analyst at FOREX. com - said that gold can still test the $4,000/ounce zone in the short term.
I believe that the fundamental factors of gold are still positive, but in the short term, downside risks still prevail. Inflation hedging needs and gold buying activities of central banks will continue to play an important role in supporting the market," he said.
Meanwhile, Ms. Eugenia Mykulak - Founder and CEO of B2PRIME Group - said that the current decline reflects the tug-of-war between short-term selling pressure and long-term accumulation demand.
Gold is still strengthening its role as an important reserve asset. Therefore, I do not see the current developments as the beginning of a downward price market," she said.
In general, although gold is under pressure from high interest rate expectations and positive economic data from the US, most experts still believe that long-term supporting factors have not changed. This means that the current decline is likely still a correction phase in the long-term upward trend of the precious metal rather than the reversal of the entire cycle.
