Gold prices lost the psychological milestone of 4,000 USD/ounce, while silver fell below 60 USD/ounce, making the psychology in the precious metal market pessimistic. However, according to Saxo Bank, although gold is still under great pressure in the short term, unfavorable fundamental factors are gradually weakening, opening up opportunities for the market to stabilize again.
In a newly released report, Mr. Ole Hansen - Head of Commodity Strategy at Saxo Bank - said that the strong USD increase and the tough stance of the US Federal Reserve (Fed) after last week's meeting are still the two biggest obstacles to gold prices.
According to him, investors currently mainly choose to reduce the proportion or withdraw capital from the precious metals market.
Considering the total yield, gold prices are currently down 8.4% from the beginning of the year but still 18.5% higher than the same period last year. Meanwhile, silver is under heavier pressure when it decreased by 19% from the beginning of the year, although it still increased by about 56% in the past 12 months.
Mr. Hansen believes that the latest decline mainly stems from the strong rise of the USD.
The greenback has increased continuously for a week and set a 13-month high. The main driving force comes from the Fed's "hawkish" message, increasing expectations that the US central bank may continue to raise interest rates later this year.
For non-performing assets such as gold and silver, the prospect of high interest rates means that the opportunity cost of holding increases, while investor confidence is already quite fragile.
According to Saxo Bank experts, the fact that gold prices broke through the 4,000 USD/ounce mark may cause the wave of sell-offs to continue to increase. Since the historical peak of over 5,600 USD/ounce set in January, this precious metal has adjusted about 26%.
Breaking the technical support threshold continues to weaken market sentiment, forcing many investors to narrow their positions, although the fundamental macroeconomic context in the past week has begun to become less unfavorable," Hansen said.
However, this expert also believes that some factors that once put pressure on gold are gradually reversing.
Notably, the plunge in oil prices has contributed to cooling inflation concerns, thereby reducing pressure on the Fed to continue tightening monetary policy. This trend has been reflected in the interest rate futures market, as expectations of further interest rate hikes began to decline, and long-term US government bond yields also fell.
In addition, major banks in China are simultaneously tightening the trading of precious metals by individual investors after a period of strong fluctuations. Measures such as stopping opening new accounts, stopping intermediary trading services and raising margin requirements are expected to limit speculative activities using high leverage.
According to Mr. Hansen, in terms of fundamentals, the environment for the gold market is actually becoming less disadvantageous than it was a week ago.
However, for gold prices to regain their upward momentum, the market needs to witness capital withdrawal from gold ETF funds stagnate, and at the same time, the USD gradually loses its upward momentum.
Until those things happen, gold and precious metals are likely to still be mainly affected by investor positioning and technical signals rather than fundamental factors," Hansen said.
