Has the metals rally come to an end?

Gold has plunged more than 3% since the start of the week (the biggest daily drop in nearly two years), while silver has suffered a sharp 5.5% correction.

There are two main reasons for this sudden turnaround. Firstly, easing geopolitical tensions in the Middle East is dampening demand for safe-haven assets such as gold.

On the one hand, this change comes as Israel is backtracking on its plans to strike a heavy blow at Iran under pressure from the United States and other allies.

The missile strike Tel Aviv launched against an Iranian facility on April 19 must have been much more forceful. Still, Israel chose to soften it to avoid escalating the conflict.

On the other hand, according to internal Iranian government reports, Tehran is not planning an “immediate retaliatory strike” following the attack on its soil.

The second factor affecting precious metals is macroeconomic data, in particular, the response of Federal Reserve members to the latest updates.

In particular, news that US consumer prices rose 3.5% in March, up from 3.2% in February, reaching their highest levels since September 2023, has prompted a rethink on rate cuts.

As a result, the Fed’s Goolsbee has noted that progress in curbing inflation in the United States has stalled. It seems prudent to hold off on rate cuts for now. In December, Goolsbee was optimistic that inflation would decline satisfactorily.

Fed Chairman Jerome Powell suggested that interest rates may have to remain elevated while the battle against inflation continues.

According to MarketWatch, Powell’s remarks have led most analysts to believe there will be no U.S. rate cut before the Fed’s Sept. 18 meeting. Some experts even speculate that there may be no Fed rate cuts this year.

Vanguard analysts advise clients to consider adding inflation-protected instruments to their portfolios in light of the latest data. It looks like we are back to where we started last year…

As for the reasons behind rising prices, it’s a mix of sustained consumer demand, unexpectedly solid economic performance, Fed money injections (M2 hasn’t seen significant declines lately), and rising energy costs.

Still, amid all this, the United States has banned the import of Russian aluminum, copper, and nickel. Incidentally, Russia is a significant player in the mining industry, accounting for about 6% of world nickel production, 5% of aluminum, and 4% of copper.

As for the short-term outlook for gold (XAUUSD) and silver (XAGUSD), keeping an eye on macroeconomic indicators is essential, as everything depends on them. In particular, watch out for first-quarter US GDP figures (April 25) and the PCE price index (April 26).

US GDP is forecast to fall to 2.5%, while the overall and core PCE price index is expected to hover around 2.6%. These figures will influence the US dollar and stocks, and their fluctuations will impact commodities and hedging assets, including gold.

This article was written by FL Contributors at www.forexlive.com.