Gold and silver prices simultaneously plummeted in the trading session on June 25 as the USD continued to strengthen and expectations that the US Federal Reserve (Fed) will maintain high interest rates for a long time put pressure on the group of precious metals.
Selling pressure continues to stem from the market adjusting expectations for the Fed's monetary policy.
Although the Fed kept interest rates unchanged at its meeting on June 17, the US central bank still emphasized prioritizing inflation control, causing the market to increasingly believe that interest rates will remain at a higher level for longer. The USD therefore continued to appreciate, while non-performing assets such as gold and silver gradually lost their attractiveness.
In addition, concerns about oil supply disruptions also cooled down as transportation through the Strait of Hormuz gradually resumed. Brent oil prices fell to around 73.9 USD/barrel, reducing demand for holding gold as an inflation hedge and safe haven asset.
In the trading session on Wednesday, gold continued to be under pressure as the USD Index rose to its highest level in more than a year. Spot gold prices at one point fell more than 3%, to about 3,980.20 USD/ounce.
The USD rose sharply as the market increasingly bet on the possibility that the Fed will raise interest rates to curb inflation. According to the CME FedWatch tool, investors currently expect the Fed to start raising interest rates right from the September meeting, and do not rule out the possibility of further tightening policy in December.
However, many experts believe that the current plunge does not mean that the long-term upward cycle of gold has ended.
According to Kitco News, Mr. Paul Williams - CEO of Solomon Global - said that investors need to look at current developments in a long-term context instead of just focusing on the immediate correction.
According to him, the fact that gold prices fell nearly 30% compared to the historical peak set in January is not an unusual phenomenon compared to previous price increase cycles.
In the 1970s, gold prices fell about 45% from a mid-cycle peak to a 1976 low before rising sharply and setting a new record in 1980. In the 2008 financial crisis, gold also fell about 30% before recovering strongly and setting a new peak in 2011", Mr. Williams said.
According to him, deep correction phases are always part of long-term uptrend cycles. The most important thing for investors is to assess whether the fundamental factors driving gold holding demand have really changed or not.
In my opinion, the answer is no," he emphasized.
Mr. Williams admitted that gold is under pressure as the market focuses on rising opportunity costs due to higher interest rates and the Fed signaling readiness to continue tightening monetary policy.
However, he noted that even after a sharp adjustment, gold prices still increased by nearly 20% compared to the same period last year.
Even in the current price range, gold has still increased by nearly 20% in the past 12 months. Factors that have supported the gold market in recent years such as central bank buying demand, geopolitical instability and high global public debt have not disappeared in just a short time," he said.
According to this expert, short-term fluctuations in gold prices mainly reflect investor profit-taking activities, changes in interest rate expectations and the strength of the USD, rather than changes in market fundamentals.
Although still maintaining a positive view of long-term prospects, he also warned investors to prepare for the possibility that gold will continue to correct in the short term.
From a technical perspective, expert Muhammad Umair believes that the 3,950 – 4,000 USD/ounce area is currently an important support threshold. If the 3,950 USD/ounce mark is broken, gold prices may continue to fall to the 3,850 USD/ounce area.
In a positive scenario, to regain the upward trend, gold needs to rise back to the resistance zone of 4,350 USD/ounce before moving towards the target of 4,500 USD/ounce.
Meanwhile, some analysts believe that if pressure from the USD and expectations that the Fed will continue to raise interest rates for a long time, gold prices may completely retreat to the 3,700 USD/ounce range before finding a new balance point.
For silver, the nearest resistance zone is in the range of 70 – 72 USD/ounce. If it crosses this area, the price may head to 78.6 USD/ounce. Conversely, if it loses the support level of 55 USD/ounce, silver may continue to retreat to the accumulation zone of 45 – 55 USD/ounce.
