Gold declines 2% amid market crash, silver plunges 5%; what’s behind the plunge?

Gold prices dropped over 2 per cent during a volatile session on Monday as investors sold off positions alongside a broader decline in equities. By 1139 GMT, spot gold had fallen 2 per cent to $2,393.66 per ounce, while U.S. gold futures decreased by 1.4 per cent to $2,434.10.

“Gold and silver exhibited significant price volatility last week, experiencing gains in the international markets. Gold prices reached a lifetime high amid hopes for Fed rate cuts and disappointing US job data. Silver followed suit, surpassing $28.50 per troy ounce. However, both precious metals were unable to sustain these highs, declining after weaker-than-expected US job reports and factory orders data, which heightened recession fears. Additionally, the Japanese Yen made a strong comeback against the US dollar, increasing volatility in global financial markets. Despite this, gold and silver prices dipped from their peaks but found support due to dollar weakness and escalating tensions in the Middle East. Gold has support at $2418-2398 and resistance at $2454-2474. Silver has support at $28.10-27.88 and resistance at $28.64-28.85," said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.

What's behind the plunge?

Stock markets plunged, with Japanese shares surpassing their 1987 Black Monday losses at one point, as concerns about a potential U.S. recession drove investors to sell off riskier assets.

On Friday, data revealed that the U.S. unemployment rate rose to 4.3 per cent in July, increasing the chances of an interest rate cut by the Federal Reserve in September. Markets are now anticipating a potential reduction of up to 50 basis points by the central bank.

Bullion, commonly utilized as a safeguard against geopolitical and economic uncertainties, tends to perform well when interest rates are low. However, concerns about a potential recession have led to a decline in prices for other precious metals.

“Gold prices opened strong in Comex, starting near $2,440 and rallying to $2,455, which pushed MCX Gold to ₹70,500. However, panic triggered by the Japanese Yen and the Bank of Japan has contributed to a sell-off in gold. With US interest rates still elevated, gold has encountered resistance on recent rises, particularly around ₹70,500. A potential preemptive US interest rate cut could increase buying pressure in gold, especially since recent economic data from the US has not been supportive. As a result, the price range for gold is expected to be between ₹69,000 and ₹71,000, with volatility likely in the sessions ahead,” said Jateen Trivedi, VP Research Analyst - Commodity and Currency, LKP Securities.

Spot silver fell by 5.7 per cent to $26.92, platinum dropped 4.1 per cent to $918.35, and palladium decreased by 4.5 per cent to $849.05, reaching its lowest point since August 2018.

Platinum and palladium, which are used in engine exhaust systems to lower emissions, are facing pressure due to the long-term risks associated with the shift towards net-zero emissions.