Gold Price Crash: Gold and silver prices fell, gold fell below $4000, 3 year fast record broken

The biggest news of this time is coming out from the global commodity market. Gold prices, which were skyrocketing for a long time, have witnessed a historic fall that has surprised investors. The price of gold in the international market has fallen below the psychological level of $ 4,000 an ounce for the first time since November.

The direct and major impact of this global recession is clearly visible in India’s domestic bullion markets as well. On Wednesday, the price of 10 grams of 24 carat gold fell to Rs 1,42,178 in the Indian markets, while silver also fell to Rs 2,22,035 per kg amid heavy pressure. Whereas, if we talk about Multi Commodity Exchange (MCX), the future price of gold closed at Rs 1,41,100 per 10 grams and the price of silver closed at Rs 2,12,697 per kg.

Heavy selling and dominance of dollar in the international market

Wednesday was a nightmare for gold in the international market, where its prices fell by 3.8% to below $ 3,960 an ounce. Spot gold was down 3.0% at $ 3,992.44 an ounce in New York on Wednesday evening. Along with gold, heavy profit booking was also seen in silver and it fell by a huge 6.9% to $ 57.31 an ounce. The biggest factor behind this big fall is the US dollar, which has strengthened by about 1% this week. Due to the strengthening of the dollar, these precious metals denominated in dollars have become very expensive for buyers of other currencies, due to which their demand has decreased.

Why did the prices of gold and silver suddenly start falling?

Three years of spectacular rise has ended: In the last three years, gold had made investors rich and given excellent returns in double digits every year. During this period, gold prices had more than doubled. Central banks, big money managers and retail investors all took part in this boom. But this rise suddenly stopped at the end of January this year when gold reached near its record high of $ 5,600 an ounce. By June, it had fallen by more than 20% from its previous record high, which in economic and technical language is generally considered to be the beginning of a bear market.

Effect of Federal Reserve’s strict policy: According to Darwei Kung, head of commodities at DWS Group, gold prices are currently entirely driven by expectations and speculations about US interest rate hikes. The statement by Federal Reserve Chairman Kevin Wersh to keep a tight focus on inflation has made it clear that the central bank may adopt a more stringent stance in the coming days. The possibility of this tough stance has given a huge boost to the US dollar, which has become the biggest obstacle in the path of gold at this time. Apart from this, the continuous negative positions of big trend following funds gave more momentum to the fall of gold on Wednesday.

America-Iran war and economic equations increased difficulties

The outbreak of the US-Iran war is considered to be the most important global factor derailing gold’s spectacular performance. Rising energy and crude oil prices caused by this war have fueled inflation around the world, forcing central banks to raise interest rates. Due to rising interest rates, gold is now less attractive to investors compared to yield (regular return) assets like treasury bonds, as gold does not earn any regular interest.

Global banks reduced gold price estimates: In view of this poor condition of gold, last week many big and leading banks of the world have reduced their future forecasts of gold. Although the revised targets are still slightly better than current prices, Wall Street analysts are no longer as bullish and optimistic about gold as before. Veteran investment bank Goldman Sachs has cut $500 from its previous forecast and now expects gold to be at $4,900 an ounce by the end of the year. At the same time, Deutsche Bank has also reduced its price estimate for the fourth quarter by 17%.

Continued selling pressure from ETFs: Another concern for the commodity market is the continued large-scale selling by gold-linked exchange-traded funds (ETFs). Deutsche Bank has made special mention of this in one of its notes and said that the general and huge institutional support for the metal is completely missing from the market at the moment. On the other hand, if we look at the Chinese markets, the onshore discount on gold compared to the COMEX prices of New York clearly indicates that the import market is not going to provide any major support to gold prices in the coming time.

Continuous purchases by central banks became the last hope

The only saving grace for gold amid this all-round recession and gloomy environment is that the demand for gold from central banks around the world remains very strong. Monetary institutions of various countries have increased their gold reserves in the first quarter of this year at the fastest pace compared to the last one year.

Recent survey data also shows that these central banks want to buy more gold in the coming days. DWS expert Kung hopes that this year can provide a strong base for gold due to this heavy purchasing by central banks. In fact, many big central banks of countries like China and Russia are feeling the need to diversify their reserve assets and reduce their dependence on the dollar, given the current geopolitical conditions, which could save gold prices from a complete crash.