Gold and Silver Price Pull Back as Investors Lock in Profits

Silver, which was going like a rocket at a record speed, stepped down from its highest point. On the other hand, gold, which has always been the market’s emotional support asset, has also become less radiant for investors who have been securing profits.

This is not an indication of panic, instead it is a pause, where traders reveal their different strategies on risks, geopolitics, and the evolution of U.S interest rates.

Silver Steps Back

The silver price fell quickly after it touched the peak of $80 an ounce earlier in the session. The spot silver price declined by 5.4% and reached $74.90 an ounce, thus withdrawing from its $83.62 intraday high. However, the decline does not take away the silver’s title of being one of the strongest metals this year with a staggering increase of 181% so far.

The rally was driven by a combination of existing supply shortages, which increased industrial demand and investor’s interest, along with the metal’s classification as a critical mineral in the U.S.

The pullback is seen as profit-taking rather than a change in market sentiment. After such a quick climb, investors appeared to be ready to take their profits and cash in, particularly as the risks in the larger market were showing some signs of slowing down.

Gold Slips

Gold, which also lost its gleam and slipped from a close to its historic heights. The spot gold price fell by 1.9% and reached $4,448.23 an ounce after it had been at a record high of $4,549.71 on Friday. The U.S gold futures for February delivery also declined by a similar amount to $4,467.90.

The fall of the precious metal was mainly related to profit-taking at the end of the year, and that was the reason behind the price decrease as well, as per the analysts.

ActivTrades’ Evangelista pointed out that the decline was at least partly the result of the traders’ selling off after the prices hit their all-time highs. Also, the geopolitical scene becoming somewhat less tense had also reduced the demand for gold as a safe investment.

Evangelista said,

“This morning’s (gold) price decline, which follows record highs, is attributable mainly to traders taking profits ahead of the year-end,”

Easing Geopolitical Tensions Weigh on Bullion

The gold prices were cut down by the market perception of decreased geopolitical risk. U.S President Donald Trump said that he and President of Ukraine Volodymyr Zelenskiy were “getting a lot closer, maybe very close” to a possible peace deal for ending the war in Ukraine.

The solution is still far from being resolved, but the tentative optimism was enough to slightly lower gold’s defensive appeal.

In any case, bullion prices have gone up by almost 72% this year, thanks to the anticipation of a softer U.S monetary policy, a weaker dollar, strong central bank purchases, and geopolitical tensions that are far from being resolved.

Platinum and Palladium Sees Decline

The other precious metals also experienced larger losses. The market price for platinum fell by 6.5% to $2,291 per ounce, after reaching a record of $2,478.50. Also, the market price for palladium fell by 13% to $1,674.25.

The larger decreases indicate thinner liquidity and higher volatility in these markets, where price movements are often more exaggerated during the times of profit-taking, when traders are selling to secure their profits.

Eyes on the Federal Reserve

All the attention now is on the Federal Reserve’s December meeting minutes. They are set to be released on Tuesday, which could provide new indications regarding the interest rate outlook. Currently, traders are factoring in 2 rate cuts for the next year, a scenario that is usually favorable for non-yielding assets like gold and silver.

However, UBS analysts warned that gold is trading at a high premium and that if the Fed turns out to be more aggressive or large ETF outflows materialize, the downside risks could surface. Any sudden shift in the policy expectations could swiftly change the scenario in the precious metals market.

UBS analysts said,

“Gold prices are trading at an elevated premium, and downside risks could emerge if a hawkish pivot by the Federal Reserve were to surprise and/or large ETF outflows were to affect the market”.

Bottom Line

After the remarkable gains, profit-taking and cooling down of geopolitical tensions have put short-term pressure on the market, but the major driving forces remain unchanged, which are monetary policy expectations, supply constraints, and long-term demand. So, at the moment, the precious metals appear less like a vanishing story and more like a pausing story.