Gold posts biggest one-day drop in over a year as geopolitical concerns ease

By Myra P. Saefong and Barbara Kollmeyer

Silver futures drop 5.5% on Monday

Gold and silver futures dropped on Monday, pressured as investors priced in fading geopolitical tensions, with appetite swinging toward stocks and other assets perceived as riskier.

"With Iran and Israel apparently backing away from any further direct confrontation for the time being, there was only so long that gold and silver could defy the gravity of rising bond yields and rising year-end [Federal Reserve interest] rate forecasts," Adrian Ash, director of research at BullionVault, told Market Watch.

The "underlying bid for gold bullion remains firm, supported by the dire geopolitical mess in the Middle East," he said, but the spike above $2,430 in intraday trading Friday came on heavy trading in Comex futures and options. "Funding costs for speculative bulls have jumped as betting has evaporated that the Fed will start cutting rates anytime soon," he said.

Gold for June delivery (GC00) (GCM24) fell $67.40, or 2.8%, to settle at $2,346.40 an ounce on Comex, marking the lowest finish since April 5, according to Dow Jones Market Data. The most-active gold contract marked its worst one-day percentage decline since Feb. 3, 2023. June gold futures had settled Friday at a fresh record high of $2,413.80.

May silver (SI00) (SIK24) declined by $1.60, or 5.5%, to settle at $27.25 an ounce, the lowest finish since April 3. The session's percentage loss was the biggest since June 17, 2021.

Up by about 13.3% so far this year, gold has been boosted recently by a volley of attacks between Israel and Iran, although the weekend proved quiet. Silver, meanwhile, has nearly matched gold's year-to-date rise, trading 13.1% higher so far this year.

Despite gold's gains, the metal has failed to see a weekly close over $2,400, and that "might be enough for traders to think about taking some money off the table in the near term," said Jake Hanley, managing director and senior portfolio specialist at Teucrium.

Fundamentally, there are two narratives making their way through the markets, he told MarketWatch.

Geopolitics is one - where fighting in the Middle East is going to remain constrained for the near term, with Israel fighting Iranian proxy fighters and not Iran directly, for example, he said.

Marios Hadjikyriacos, a senior investment analyst at XM, told clients that judging by "measured" counterattacks, clearly neither Israel nor Iran were "interested in an actual war."

"The same goes for the United States, which has been trying to defuse tensions behind the scenes. Hence, investors are piling back into riskier trades and liquidating their hedges, hopeful that the aftershocks will be contained," Hadjikyriacos said.

The second narrative, according to Hanley, involves inflation concerns. That "seems counterintuitive," as one might think that concerns about inflation would support gold. However, he said, "inflation risks mean higher interest rates. Higher interest rates present headwinds for gold."

Looking ahead, he expects gold prices to test the $2,300 level and perhaps even $2,200.

In either case, Hanley said the bull market in gold is set to continue.

Upcoming U.S. economic data, meanwhile, may provide important clues on the future trajectory of interest rates, which can significantly affect the attractiveness of nonyielding assets like gold, said George Khoury, global head of education and research at CFI, in emailed commentary.

Data this week include the flash global PMIs Tuesday, first-quarter GDP on Thursday and the personal-consumption-expenditures price index on Friday.

"Traders could remain cautious as stronger-than-expected data could drive gold lower," said Khoury.

Fed officials have continued to emphasize that interest rates might need to remain elevated for an extended period to bring inflation under control, so hawkish comments from the central bank could further weigh on gold prices, he said.

-Myra P. Saefong -Barbara Kollmeyer

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04-22-24 1433ET

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