Precious metals prices plummet! Spot gold approaches $4,500, while silver drops over 13%

Spot gold prices are approaching $4,500.

On the evening of March 19, Beijing time, spot gold (London spot gold) plunged by more than 5%, continuing to fall after falling below the $4,600 per ounce level, with a low of $4,502.01 per ounce. Spot silver (London spot silver) once fell by more than 13%.

As of the time of this report, spot gold was at $4,543.11 per ounce, down 5.62%; COMEX gold futures were down 6.34%, at $4,585.8 per ounce. Spot silver was down 11%, at $67.086 per ounce; COMEX silver futures were down 13.03%, at $67.48 per ounce.

Why have gold and silver plunged?

On the news front, the U.S. Department of Labor said on Thursday that in the week ending March 14, initial claims for unemployment benefits fell by 8,000, to 205,000 (seasonally adjusted), compared with a market expectation of 215,000. This was the lowest level since January last year. At the same time, the U.S. Treasury bond market suffered a heavy selloff, pushing yields higher across the board. Traders further lowered their expectations that the Federal Reserve will cut rates in 2026, triggering a sharp drop in precious metals.

Bai Sunna, manager of the precious metals and new energy research center at Sinotrade Futures Research Institute, told a reporter with The Paper that there are two main reasons for the continued decline in precious metals prices. First, uncertainty in the Middle East geo-politics continues to escalate, intensifying the risk that this war will become prolonged. This could mean oil prices will stay elevated for a longer time, while the market continues to trade weaker expectations for the Fed’s rate cuts within the year, which is a persistent negative for precious metals prices. Second, although the Federal Reserve held steady in March and did not close the door to rate cuts, comments by Fed Chair Jerome Powell on interest rate policy—especially the point that “discussions about the possibility of further rate hikes have been mentioned”—made an already fragile market interpret it as hawkish. As a result, after Powell’s speech, market expectations for the Fed to cut rates this year weakened further. The interest rate swap market showed that the expected magnitude of this year’s rate cuts is only 12 basis points remaining, meaning the probability of one rate cut by the Fed within the year is less than 50%. Driven by this, the yield on 2-year U.S. Treasuries rose further to above 3.8%, reaching a new high since August last year. Precious metals prices were hit by a liquidity shock, further weighing on them and driving the decline.

A strategist at ING Global also said that the rise in oil prices appeared after tensions in the Middle East intensified again, with the market increasingly pricing in the risk that energy supply and shipping routes are being disrupted. “Although heightened geopolitical tensions typically support safe-haven demand, the inflation impact from rising energy costs is putting pressure on gold.”

Jerry Chen, a senior analyst at Saxo, believes that since the outbreak of Middle East geopolitical conflict, the logic in financial markets has gradually become clearer: safe-haven funds have flowed into crude oil and the U.S. dollar. Inflation risk has forced global central banks to end their easing policies and even move into a rate-hike cycle, which has weighed on gold and led to a selloff in global equity markets. “Since everything originates from crude oil, whether and when crude oil will fall is the key direction the market is following.”

Carsten Mönke, head of the research department at Julius Baer, said that amid tight conditions in the Middle East, if financial markets could show a more pronounced safe-haven sentiment, gold could truly shine. He pointed out that gold prices were affected by a rebound in the U.S. dollar and rising U.S. bond yields because the earlier sharp rally was largely based on expectations of a weaker dollar. He added that those who bet that gold prices would rise due to a weaker dollar have been taking the wrong trading stance ever since the war began.

Does the value of long- and medium-term allocation still hold?

Looking ahead, most market views believe that the performance of precious metals still depends largely on the intensity of the Middle East geo-political conflict and how long it lasts.

A strategist at CICC Macroeconomics Trading said that although geopolitical risks have continued to rise, in an environment of a strong dollar and high oil prices, gold continues to face pressure. Increased market volatility has also prompted some investors to close out gold positions to meet margin requirements for other assets. “The market’s expectations that the U.S. will soon cut rates have always been an important pillar supporting gold’s rise, but the surge in oil prices has weakened expectations for monetary easing, which to some extent also weakens support for gold prices.”

“The main storyline in the current market will remain focused on geopolitics. A blockade of the Strait of Hormuz directly threatens 20% of global oil supply. If military conflict spills over to energy infrastructure, further upward pressure on oil prices will force funds to return to gold again to hedge the risk of runaway inflation. And if inflation actually runs out of control, real interest rates would return to a downward channel, further pushing gold prices to stabilize.” East Huasheng Futures Research Institute’s director of non-ferrous metals research, Peng Zhang, suggested that investors should adopt a strategy of allocating on dips. Whether future trading is driven by inflation expectations or stagflation expectations, gold’s strategic allocation position will improve. Under the impact of liquidity concerns, opportunities for investors to allocate on dips have actually been created.

Bai Sunna said that in the long and medium term, the allocation value of gold remains. Against the backdrop of ongoing global geopolitical uncertainty and the ongoing push toward de-dollarization driven by the United States’ massive debt, global central banks and institutions may still continue to buy gold, which could provide support for precious metals prices. She expects that after the recent shock, the downside space for further big drops in precious metals prices may be relatively limited. Strategically, investors can look for allocation opportunities for long-term long positions at an opportune time.

Wells Fargo’s year-end target price range is $6,100 to $6,300 per ounce. Its core logic is structural support for the gold price: global central banks have continued to be net buyers of gold for multiple consecutive years, and the long-term credit of the U.S. dollar is still slowly being diluted. The geopolitical risk premium is only temporarily covered by the rate-cut narrative, but it has not truly disappeared.