Gold prices dropped by more than 2% on Monday in a volatile market as investors sold off assets, aligning with a broader decline in equities. Despite the downturn, analysts maintain that gold’s reputation as a safe-haven asset remains intact, especially as concerns over a potential U.S. recession grow.
By 1139 GMT, spot gold had fallen 2% to $2,393.66 per ounce, while U.S. gold futures decreased by 1.4% to $2,434.10.
Adrian Ash, director of research at Bullionvault, noted, “There’s some truth to the saying that all correlations converge during a crash. With traders needing to liquidate profitable positions to cover margin calls on other assets, gold’s volatility reflects the panic affecting equity markets.”
The stock market took a significant hit, with Japanese shares surpassing their 1987 Black Monday loss at one point, driven by fears of a U.S. recession leading investors to shed riskier assets.
U.S. Data and Federal Reserve Expectations Influence Market
Friday’s data showed a rise in the U.S. unemployment rate to 4.3% in July, increasing the likelihood of a Federal Reserve interest rate cut in September. Markets are now anticipating a potential cut of up to 50 basis points.
Han Tan, chief market analyst at Exinity Group, commented, “Heightened geopolitical tensions and expectations of further Fed rate cuts should create favorable conditions for gold. Once market anxiety subsides, gold is likely to reach a new record high.”
Gold is often seen as a hedge against geopolitical and economic uncertainties and tends to perform well when interest rates are low.
Impact on Other Precious Metals
The drop in gold prices also affected other precious metals, as recession fears dampened demand. Spot silver fell by 5.7% to $26.92, platinum dropped 4.1% to $918.35, and palladium declined 4.5% to $849.05, reaching its lowest level since August 2018.
Platinum and palladium, both critical in reducing vehicle emissions, are facing long-term pressures due to the transition towards net zero emissions. However, StoneX analyst Rhona O’Connell pointed out that significant short positions in these metals may eventually be unwound, potentially driving their prices back towards $1,000.
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