Gold Price Plummets: Worst Week Since 1983 & Impact of Geopolitical Tensions

Gold prices experienced their worst week since 1983, plummeting nearly 10% in the last seven days, according to reports from Bloomberg. The precious metal fell below $4,300 per troy ounce in Monday morning trading, extending a nine-day losing streak. The decline follows a period of record highs, where gold briefly surpassed $5,500 per troy ounce.

Silver mirrored gold’s downturn, losing almost half its value from recent peaks in Monday’s trading. Yet, both metals partially recovered following an announcement by former U.S. President Donald Trump that he had directed a five-day conditional postponement of any attacks on Iranian nuclear facilities and energy infrastructure.

“Gold is having a liquidity problem,” Johan Jooste, CEO of Singapore-based asset manager Pangaea Wealth, told Bloomberg. He attributed the sharp sell-off to investors needing to raise cash, warning of further potential declines should the geopolitical situation escalate.

The scale of the gold sell-off, while not unprecedented, is occurring at a faster pace than many historical instances, according to Wayne Gordon, an investment advisor with UBS Group AG’s wealth management division.

Several factors are contributing to gold’s weakness. Tomáš Pfeiler, a portfolio manager at Cyrrus, points to the strengthening dollar as a key driver. “We are as well seeing the traditional mechanism at play, where rising real bond yields push down the prices of this precious commodity,” Pfeiler stated. The yield on the ten-year U.S. Treasury bond has risen by half a percentage point since the end of February, reaching 4.4 percent.

Market sentiment suggests a belief that central banks will maintain a hawkish stance on monetary policy. Following recent inflationary pressures, Pfeiler believes central banks will be reluctant to cut interest rates, a view reinforced by Jerome Powell’s comments at the Federal Reserve meeting last week.

David Wilson, chief commodities strategist at BNP Paribas, noted a historical pattern in gold’s reaction to macroeconomic shocks. “When you glance at market turbulence in 2008, 2020 and 2022, the precious metal also initially weakened as investors sold assets, including gold, to hold more dollars,” Wilson explained to Bloomberg, adding that gold subsequently experienced strong gains in those instances.

The market will likely test this pattern despite Trump’s decision to delay military action against Iran. Trump stated that the U.S. Had held “incredibly good and productive” talks with Iran regarding a complete end to the conflict in the Middle East. He conditioned the postponement on the continuation of ongoing discussions this week, describing the negotiations as “detailed and in-depth.”

However, Iranian state media subsequently denied any direct or indirect contact with U.S. Officials. Trump’s decision extended a Saturday ultimatum demanding Iran fully open the Strait of Hormuz, under threat of destroying Iranian power plants. Iran’s Revolutionary Guard responded with a statement that Tehran would retaliate by targeting Israeli power plants and facilities supplying electricity to U.S. Bases in the region if attacked.

Prior to the heightened tensions, approximately 20% of global oil and liquefied natural gas shipments transited the Strait of Hormuz. Threats and attacks on vessels by Iran have reduced traffic by roughly 90%, leading to significant increases in oil and gas prices.