Why did gold and silver plummet?

By Bao Yilong

Source: Wall Street CN

Spot gold fell **3.5%** on Thursday to a six-week low, bringing its weekly decline to nearly 8%, putting it on track for its worst weekly drop since March 2020. Silver also plunged 12% at one point during the session. The core driver of this sell-off was a **reversal in interest rate expectations**, as central banks across the U.S. and Europe signaled a series of hawkish messages. At the same time, retail investors sold gold ETFs net for consecutive sessions, and CTA hedge funds actively reduced long positions, intensifying the sell-off amid liquidity pressure.

The sharp slump in gold and silver reflects a combination of **reversed rate expectations** and mounting liquidity stress.

On Thursday, March 19, spot gold tumbled 3.5%, briefly breaking below the $4,500 mark to hit a six-week low. Silver also crashed 12% intraday before paring losses significantly to end down 3.3% in late New York trading.

Gold has declined for several weeks in a row since the outbreak of hostilities between the U.S., Israel and Iran. It has fallen nearly 8% so far this week, heading for its steepest weekly drop since March 2020. Robert Gottlieb, a former JPMorgan precious metals trader, warned investors:

*Do not rush to buy the dip, as market volatility remains extremely high.*

He added that selling pressure may persist until volatility subsides and prices stabilize and consolidate.

Analysts believe central banks in the U.S. and Europe have sent signals in succession this week, suggesting the pace of rate cuts may be slower than previously expected. Meanwhile, both institutional and retail investors are simultaneously reducing their precious metals exposure. Amid the dual pressure of dashed rate-cut hopes and liquidity shocks, long positions built up earlier in gold and silver are unwinding rapidly.

### Reversed Interest Rate Expectations: The Core Driver

The fundamental logic behind this sell-off is a **repricing of the interest rate environment**.

The Middle East conflict triggered a sharp surge in crude oil, natural gas and fuel prices, heightening market concerns over the global inflation outlook. Since gold generates no interest income, the scaling back of rate-cut expectations has directly eroded its relative appeal.

Gold tends to perform well in low-interest-rate environments, as the opportunity cost of holding gold is low. When interest rates stay high, assets such as bonds that offer steady income become significantly more attractive to capital.

The energy shock from the Middle East war has put global central banks in a dilemma between inflation and growth, prompting a string of hawkish signals this week:

- The Federal Reserve kept rates unchanged with a hawkish tone.

- The Bank of Japan also held rates steady, noting the Middle East situation has complicated its monetary policy outlook.

- The Swiss National Bank and Sweden’s Riksbank kept rates on hold while warning of elevated economic uncertainty in the months ahead.

- The European Central Bank maintained rates, cut growth forecasts and raised inflation projections, pointing to rising stagflation risks.

- The Bank of England’s message was particularly notable: it explicitly stated it stands “ready to act” against inflation, catching markets off guard.

Aakash Doshi, Global Head of Gold and Metals Strategy at State Street Global Advisors, said:

*Before the war, money markets priced in two Fed rate cuts for this year. Current market pricing now reflects no easing at all in 2026.*

A similar dynamic played out in 2022. After the Russia-Ukraine conflict, surging energy prices boosted inflation, and gold fell for seven consecutive months from April to October that year.

### Retail Enthusiasm Cools, Capital Flows Out of ETFs

Retail investor enthusiasm for gold is also showing signs of fading.

According to VandaTrack data, the SPDR Gold Shares, the world’s largest gold ETF, has seen **net selling by retail investors for six straight trading days**, with total net outflows reaching around $10.5 million through intraday Thursday.

While this scale remains small compared to earlier buying sprees — which hit a single-day record of $36.8 million last year — analysts note the directional shift itself sends a clear signal: retail allocations to gold are weakening.

Institutional investors are also cutting metal positions. Trend-following hedge funds (CTAs), which rely on algorithms to identify price patterns, are actively reducing gold exposure amid volatile trading.

Tom Wrobel, Director of Capital Consulting at Societe Generale’s commodity brokerage division, said:

*CTAs had been in a well-established long upward trend in gold over the past six to 12 months. While they may still hold net long positions overall, they are now managing risk on those positions and scaling them back sharply.*

Suki Cooper, Global Head of Commodities Research at Standard Chartered, pointed out that following the substantial rally in gold and silver over the past two years, some investors are choosing to lock in profits to cover losses in other assets — for instance, to meet margin calls triggered by stock market declines.

A stronger U.S. dollar and the rising allure of alternative opportunities such as energy stocks are also diverting capital. Cooper added:

*Liquidity needs in other sectors continue to weigh on gold’s geopolitical risk premium.*

The sell-off is not limited to gold and silver. Platinum and palladium have dropped 17% and 15% respectively this month. Industrial metals including copper and aluminum have also moved lower, reflecting a systematic downgrade in global growth expectations.

Edward Meir, analyst at commodity trading firm Marex, said:

*Investors may be concluding that demand destruction will inevitably set in once the global economy slows.*

### Risk Warning and Disclaimer

The market is risky and investments require caution. This article does not constitute personal investment advice, nor does it take into account the specific investment objectives, financial situations or needs of individual users. Users should consider whether any opinions, views or conclusions in this article are suitable for their particular circumstances. Any investment made based on this article is at your own risk.