Inflation fears weigh on gold

XAU/USD

Key zone: 4,500.00 -4,750.00

Buy: 4,750.00 (on a pullback following a retest of the 4650 level); target 5,400.00; StopLoss 4,650.00

Sell: 4,400.00 (on strong negative fundamentals); target 3,750.00; StopLoss 4,500.00

Yesterday, gold and silver joined the widespread sell-off (prices fell by 3% and 5%, respectively), while mining company stocks and exchange-traded funds linked to precious metals also declined.

The sharp drop can also be explained by excessive leverage. Small speculators accumulated an excessive volume of high-leverage purchases. The ensuing margin calls and liquidations of over-leveraged funds triggered a domino effect.

Incidentally, while institutional players were exiting gold, retail investors have been buying it through ETFs in record volumes: nearly $70 billion over six months. It is speculators, not long-term investors, who are the main buyers of gold, and we see that they are reducing risk across the board.

Meanwhile, major players have begun a global profit-taking move—a pause is needed before the next decline.

• Gold futures for next-month delivery fell 4% to $4,700, while silver futures dropped 7.7%, paring earlier losses to $71.63.
• The ProShares Ultra Silver ETF fell 11.8% ahead of Thursday’s market open, while the iShares Silver Trust ETF, which became the subject of so-called “meme trading” earlier this year, dropped nearly 6%.
• The Aberdeen Physical Silver Shares ETF fell 5.7%.
• Among individual mining stocks, Teck Resources suffered the biggest losses, with its shares falling 7%, along with First Majestic Silver and Coeur Mining, whose shares fell 6.2% and 6.1%, respectively.
• The Stoxx Europe Basic Resources regional index fell by 4.5%.
• Shares of Fresnillo, the world’s leading silver producer and a major gold producer, fell by 7%, while shares of mining giant Antofagasta fell by 6.8%.

The movement in gold and silver prices reflects a general trend away from risky assets, causing global stock markets and government bonds to fall in tandem.

Markets have also begun to price out interest rate cuts by major global central banks this year, which has intensified negative sentiment toward non-yielding assets such as gold.

Investors are monitoring the conflict between the U.S. and Iran, which has now been ongoing for three weeks. The conflict is heightening fears of an energy shock that will intensify inflationary pressures on economies worldwide;

Currently, both speculators and hedge fund managers are looking for assets to sell as quickly as possible. We may now be witnessing the next stage of this process, where assets once considered “safe havens” are being sold to finance the purchase of assets that are overvalued in the current situation. But at any moment, the balance of this interest could shift.

So we act wisely and avoid unnecessary risks.

Profits to y’all!