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Gold prices experienced a sharp decline on Tuesday, falling by approximately $56.50, or 1.41%, to hit their lowest level in three weeks. This slump is primarily due to continued heavy selling by investors unwinding long positions following a robust two-month rally.
Precious metals were broadly affected this week by a drop in demand for safe-haven assets, spurred by the announcement of an initial trade agreement between the United States and China over the weekend. This deal eased bilateral trade tensions, prompting investors to scale back their holdings of gold and silver.
Underlying Support Factors Remain
Despite the sell-off, several underlying factors continue to offer support to the bullion market:
– The ongoing U.S. government shutdown.
– Uncertainty surrounding impending U.S. tariffs.
– Persistent geopolitical risks.
– Sustained central bank purchases.
– Political pressure concerning the Federal Reserve’s independence.
Furthermore, recent weaker-than-expected U.S. economic data has reinforced expectations that the Federal Reserve will continue cutting interest rates, a factor typically considered bullish for both gold and silver prices.
Pressure from ETFs and Broad Selling
Precious metal prices are facing additional headwinds as investors pull out of Exchange-Traded Funds (ETFs), coinciding with broad market selling. Gold holdings in these ETFs dropped by 0.8% through last Friday, compared to the peak reached the previous Tuesday, which was a three-year high.
Similarly, silver holdings declined by 1.3% from a high recorded three and a quarter years ago. Overall, the current market movements reflect a state of delicate balance between supportive and opposing factors, shaped by continuous political and economic volatility that guides investor sentiment in the precious metals market.
