Gold prices dropped below the $5,000-an-ounce mark again on Thursday, following new economic data from the U.S. that strengthened the belief the Federal Reserve won’t be cutting interest rates in the near future.
Spot prices decreased by 4% to $4,880 an ounce before bouncing back somewhat. By midday, gold was trading above $4,900, representing an intraday decline of 3%. In the meantime, silver experienced significant volatility, dropping almost 10%.
The fluctuations in bullion prices surfaced throughout the week as investors grappled with increasing geopolitical risks and the likelihood of rising interest rates, which tend to lessen the appeal of precious metals.
The declines came after U.S. labor data released on Wednesday exceeded market expectations, boosting anticipations that policymakers might maintain interest rate hikes for a longer duration. The latest figures indicated that nonfarm payrolls rose by 130,000 in January, following a reduced increase of 48,000 in December, while the unemployment rate edged down slightly to 4.3%.
“Risk out” movement
Some investors decided to take profits from gold and silver, which have surged 40% and 160% respectively over the past year, to offset losses in other investment areas.
Nicky Shields, head of metals strategy at MKS PAMP SA, noted in a report that the rapid shift felt like a “risk-out” move. He added that in times of severe market stress, even safe-haven assets like gold may be sold off by those needing cash liquidity.
The turbulence for gold and silver intensified last month, propelled by momentum buying that pushed prices to new highs, but this trend abruptly halted on January 29, leading to gold’s largest drop in over ten years and a record decline for silver.
Market analyst Fawad Razaqzada from City Index and FOREX.com commented that many traders likely set their stop losses below $5,000 or above $5,100 to protect their positions, leading to the cascading price drop when those stops were activated.
Inflation to watch
Now, investors are keenly awaiting U.S. inflation data due on Friday for insights into the Fed’s future monetary policy.
Peter Grant, vice president and senior metals strategist at Zenner Metals, remarked that the projected slowdown in headline CPI to between 2.7% and 2.4% could reignite rate cut expectations, potentially boosting gold’s appeal.
Despite January’s significant downturn, gold remains up 17% for the year. Several banks anticipate prices may hit $6,000 an ounce this year, fueled by continued central bank purchases and robust private investment.
