(Bloomberg) — Gold and silver extended declines as an uptick in Middle East tensions refocused investor attention on prolonged energy-market tightness that may lead to higher interest rates.
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Markets reacted as US President Donald Trump said the US “must respond” after he blamed Iran for shooting down an American military helicopter off Oman, posing a new threat to the peace deal he’s said for weeks is close. Bullion fell as much 2.2% and oil pared some of its losses. Copper futures in London gave up earlier gains Tuesday to close little changed.
Trump’s comments prompted concern over a potential return to clashes in the US-Iran war, a conflict that has already created the biggest oil supply disruption in history and global inflation. That’s making central banks more likely to keep interest rates steady or raise them, which is a headwind for precious metals.
Gold is 19% lower than where it was trading before the Iran war broke out at the end of February. The metal’s recent decline through its 200-day moving average — a widely watched measure of long-term momentum — has triggered additional selling as it is seen as an important level watched by institutional investors.
“The prevailing inflation fears, data strength, Fed hike probability increasing and break of 200-day moving average have led to a heavy skew negative,” said Ryan McKay, senior commodity strategist at TD Securities.
Meanwhile, Citigroup Inc. lowered its three-month target for gold to $4,000 an ounce from $4,300, citing the likelihood of a Fed rate hike this year, though kept its six- to 12-month price target at $5,000 an ounce.
“Longer term, we maintain a bullish gold view, but we believe it is extremely high-risk in the near term for anyone without very wide stops and longer-term investment horizons,” analysts including Kenny Hu said in a Monday note.
Spot gold fell 1.5% to $4,263.43 an ounce at 1:38 p.m. in New York. Silver sank 4.4%. Platinum fell and palladium rose. Copper on the London Metal Exchange settled at $13,615 a metric ton. The Bloomberg Dollar Spot Index, a gauge of the US currency, recovered some of the ground lost earlier Tuesday to edge 0.1% lower.
–With assistance from Jack Ryan.
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