Why have Gold and Silver prices fallen so much recently?

Today, I will be sharing with you some of the possible reasons that led to the recent fall in prices of Gold and Silver. Some contributing factors include the strength of the US dollar, high inflation that led to governments raising interest rates to combat rising inflation and industrial demand coming under pressure.

The price of precious metals and the US dollar tend to be inversely correlated. The dollar is trading close to its 20-year high, even the Euro which was the stronger currency has fallen parity against the dollar. The strength of the dollar is a result of capital flowing into the US dollar as investors deemed it as a safe haven asset spurred by the fear of a global recession.

Next, due to the aggressive monetary policy (increasing interest rates) to curb inflation, this in turn hurts the sentiment in precious metals since investors can yield a higher interest in seemingly safer treasury bonds. Usually, high inflation (latest data for inflation rate in US is 9.1%, highest in 40 years) is seen as positive for Gold and Silver prices, but this time interest rates also surged sharply due to government intervention mentioned above. Most investors will definitely look to next Wednesday’s (27^th July) Fed meeting to know if the interest rates will be raised by 75 or 100 basis points.

Lastly, relating to industrial demand, Silver is considered both an investment precious metal and an industrial metal; 60% of Silver’s demand is from the industries. Demand for industrial goods reduces all over the world especially in China, due to Covid lockdowns which in turn caused silver prices to take a hit.

I hope you guys have a clearer macro-overview on what is happening globally that led to the fall in prices of Gold and Silver.

If you have any questions, please feel free to contact us to understand more. In the meantime, stay safe!

Dillon