By Joe Hoppe
Precious metal prices tumbled as tensions between Israel and Iran eased and safe-haven demand for gold melted away.
June gold futures on the New York Mercantile Exchange were recently down 1.4% at $2,313.5 a troy ounce, after falling as low as $2,304.6 earlier in the session, their lowest price since April 5. They have slipped 2.9% over the past week, retreating from bullion's all-time high of $2,448.8 a troy ounce on April 12, but remain up 12.5% over the past three months.
Gold's correction is long overdue and relatively aggressive, but healthy, and will likely challenge traders' belief that further gains are possible, said Saxo Bank's head of commodity strategy Ole Hansen in a note.
The correction will help determine the real level of the precious metal's underlying demand, and the extent of it will depend on the scale of hedge funds selling, having amassed a major long position during the run up, Hansen says.
On Friday, Israel launched a limited retaliatory missile strike at Iran, in response to a prior Iranian drone and missile attack.
On Monday, Iran's foreign ministry spokesman Nasser Kanaani said that Israel had received the "necessary response at this stage."
The narrow nature of Israel's retaliatory attack, and Iran's soft rhetoric--which the market perceived as attempts to avoid further escalation--triggered the sharp move lower in both oil prices and gold, Deutsche Bank analysts said in a note. On Monday, gold recorded its biggest daily decline since June 2021.
Given positioning and recent price action, the risk of the yellow metal's prices correcting down remains elevated near-term, but geopolitics are still a bullish wildcard, JPMorgan analysts said. JPMorgan forecasts gold prices ending 2024 averaging $2,500 an ounce in the fourth quarter, with further upside next year.
Commerzbank also recently raised its price forecast for the year to $2,300 an ounce, from $2,200, arguing further downside potential should remain limited.
U.S. interest-rate expectations are still high compared to the beginning of the year and remain a drag, though global interest rates are still expected to fall, a tailwind for the precious metal alongside some residual safe-haven demand, Commerzbank analyst Thu Lan Nguyen said in a note.
Elsewhere, silver has also seen a sharp correction, with LBMA silver prices falling 1.8% to $27.74 a troy ounce in sympathy with gold. Silver had rallied faster than gold in recent weeks--rising 13% in the past month versus gold's 6.2% rise--but is now falling quicker.
Silver's selloff is being amplified by its recent failure to break above $30 an ounce, the 2020 and 2021 high, Hansen said.
Write to Joe Hoppe at joseph.hoppe@wsj.com
(END) Dow Jones Newswires
04-23-24 0738ET
