Gold and silver tumble as central banks ready interest rate hikes
Gold and silver prices slipped this morning as looming interest rate hikes and growing optimism of a ceasefire led investors to flee safe haven assets.
Gold plunged to $1960 per ounce this morning, a far cry from its $2070 peak last week, while silver dropped below $26 per ounce.
Central banks in the US and UK are widely expected to hike interest rates this week which analysts say has made gold a less attractive prospect for investors.
“The US central bank is almost certainly going to announce a 25-basis point increase in its interest rate on Wednesday to tackle rising inflation, the first change since the coronavirus pandemic began,” said Rupert Rowling, market analyst at Kinesis Money.
“This highly trailed move has put pressure on gold, with its lack of yield making gold less attractive in an environment of rising interest rates, with the price falling away from the highs achieved last week with the precious metal now trading comfortably below $2,000 an ounce.”
Silver prices have followed suit but the metal’s wider industrial usage could see it hold firmer than gold in the coming days, Rowling said.
SIlver’s use in photovoltaics – the conversion of light into electricity – could lead to a demand spike as countries rush to increase their energy independence and speed up the rollout of solar and other renewable energy sources, amid a clampdown on Russian oil and gas imports.
Analysts at Commerzbank said that raised hopes for a ceasefire in Ukraine was also increasing investors’ risk appetite and could lead to a slump in demand for gold ETFs, which soared last week.
“Bond yields are… rising significantly in response to the supposed easing of tensions, which makes gold as a non-interest-bearing investment less attractive.” Cartsten Fritsch, energy analyst said.
“It remains to be seen whether this will also translate into lower gold ETF demand. The demand for ETFs was still extremely high last week because of the Ukraine war, which lent noticeable buoyancy to the gold price.”
Russia’s invasion of Ukraine has led to a tumultuous two weeks for commodity prices as equity markets plunged and investors looked for safer places to store their cash.