Safe-haven halo fades! Gold and silver suffer sharp losses - what's the reason?

After a sustained rally, the precious metals market has once again hit the brakes.

On March 20, domestic gold and silver futures plunged significantly. Among them, Shanghai Gold fell nearly 4%, touching a low of 1,002 yuan, the lowest since early January; silver dropped over 6%, briefly reaching around 16,100 yuan, a nearly three-month low. During the night session, domestic gold and silver continued to decline, with international gold and silver prices plunging sharply. London silver closed down 7%, and London gold even broke below $4,500.

Why are former “safe-haven assets” being sold off at this time? Most institutions believe that the market is currently facing dual negative factors: liquidity shocks and expectations of tighter policies. In the face of such volatility, investors should remain calm and cautious.

Dual Negative Factors Hit, Gold and Silver Prices Drop Sharply

Amid escalating tensions in the Middle East, traditionally favored safe-haven assets have experienced consecutive declines, catching many long gold and silver futures investors off guard.

On March 20, the domestic precious metals futures market saw a sharp decline. The main silver contract 2606 closed at 17,625 yuan per kilogram, down 1,176 yuan, or 6.25%, from the previous settlement price. During the session, it briefly touched around 16,100 yuan, a three-month low.

From the trading data, the daily volume reached 1.13 million lots, with open interest dropping to 219,000 lots, a decrease of 7,961 lots from the previous day, indicating significant outflows of funds. Notably, silver showed a technical rebound after hitting the low, with intraday volatility approaching 2,500 points, reflecting intense market debate.

Gold was also under pressure. The Shanghai Gold main contract fell 3.83% to 1,039.22 yuan per gram. On the international side, New York gold prices repeatedly broke below $4,900, $4,800, and $4,700, forming clear breakdowns, which also dragged down domestic prices.

During the night session on March 20, gold and silver prices declined again. The night close saw Shanghai Gold down 1.22% at 1,016.12 yuan per gram; Shanghai Silver down 1.77% at 17,139 yuan per kilogram. London spot gold plummeted 3.32%, breaking below $4,500, closing at $4,494.015 per ounce; spot silver tumbled 7.12%, ending at $67.596 per ounce.

Regarding this round of sharp declines, institutions generally attribute the move to marginal tightening of liquidity and a renewed hawkish shift in global monetary policy expectations.

Xie Mingyang, analyst at Jinyu Futures, pointed out that fundamentally, the market is facing dual negative impacts: liquidity shocks and hawkish policy expectations. On one hand, the Federal Reserve’s March meeting remained cautious, with Powell emphasizing that rate cuts require sustained progress in inflation, and discussing rate hikes but not including them in baseline assumptions. The Fed’s hawkish stance is negative for gold and silver prices. On the other hand, recent Middle East developments have intensified, raising concerns over energy and supply chain disruptions. Market logic continues to be dominated by inflation worries and hawkish policy shifts, with U.S. Treasury yields and the dollar remaining strong.

“Under the dual pressures of economic shocks and tightening expectations, market risk appetite has sharply contracted. Investors are shifting to cash, and gold and silver are under short-term pressure from liquidity squeezes and the simultaneous strength of U.S. Treasuries yields and the dollar,” said Xie Mingyang.

Geopolitical Tensions Ease Marginally, Safe-Haven Premium Declines

Besides macro factors, changes in geopolitical expectations also significantly influence gold and silver trends.

Guoxin Futures stated that recent signals of easing have weakened the previously supporting safe-haven logic for precious metals. U.S. President Trump signaled a de-escalation in Middle East tensions, suggesting Israel might pause strikes on Iran’s key energy facilities, and the U.S. has relaxed sanctions on Iranian oil.

In this context, concerns about further escalation in Middle East conflicts have eased, and the risk premium for energy supply disruptions has declined, reducing demand for safe-haven assets like gold and silver.

Meanwhile, major global central banks are generally tightening policies. The Bank of England unanimously kept interest rates unchanged but signaled possible future rate hikes; the European Central Bank raised inflation expectations. In the collective hawkish environment of major economies, the dollar’s strength has been reinforced, exerting continuous downward pressure on gold and silver prices.

The dollar has already gained over 2% this month. A stronger dollar makes dollar-denominated gold more expensive for investors holding other currencies. According to CME’s FedWatch tool, futures markets indicate that traders see a very low chance of the Fed cutting rates this year.

Market Outlook: Short-term Weakness, Caution Recommended

Looking ahead, most institutions believe that until macroeconomic and liquidity conditions improve significantly, precious metals will remain under pressure.

On one hand, the Fed’s policy path remains highly dependent on inflation data, making a quick rate cut unlikely in the short term; on the other hand, the strong dollar and U.S. Treasury yields continue to suppress gold and silver.

From a technical perspective, Xie Mingyang noted that silver, after a secondary rally, has pulled back, showing signs of a head-and-shoulders top pattern. It recently broke below the neckline, continuing a downward trend. After a sharp dip on the 20th, a rebound occurred, but the overall bearish structure remains, with a high probability of further declines during the correction phase.

Guoxin Futures said that support levels for Shanghai Gold are key around 1,000–1,020 yuan/gram, and for Shanghai Silver around 17,000–17,500 yuan/kilogram. If these supports are broken, further downside could open.

Nicolas Vlapper, analyst at ABC Refinery, stated, “Gold has held several important technical support levels on the weekly chart and may rebound toward the previous break level of around $4,800 per ounce.”

In terms of trading strategy, institutions advise investors to strictly control their positions.

Overall, under the combined pressures of tightening liquidity, hawkish policy expectations, and waning safe-haven sentiment, the precious metals market is undergoing a phase of adjustment. The previous rally driven by “safe-haven + inflation” fundamentals is weakening, and a new pricing trend has yet to form. Gold and silver are likely to continue oscillating while searching for a new equilibrium zone.