The Safe-Haven Halo Fades! Gold and Silver Suffer Sharp Declines—What's Behind It?

After a sustained rally, the precious metals market has once again hit the “brake.”

On March 20, domestic gold and silver futures plunged significantly. Among them, Shanghai gold fell nearly 4%, touching a low of 1002 yuan, hitting a new low since early January; silver dropped over 6%, briefly reaching around 16,100 yuan, a nearly three-month low. During the night trading session, domestic gold and silver continued to decline, with international gold and silver prices sharply falling. London silver closed down 7%; 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 experiencing a dual negative impact from liquidity shocks and tightening policy expectations. In the face of such intense volatility, investors should remain calm and cautious.

Dual negative impacts cause gold and silver prices to plummet

Amid escalating tensions in the Middle East, traditionally favored safe-haven assets have repeatedly fallen sharply, catching investors long on gold and silver futures off guard.

On March 20, the domestic precious metals futures market saw a heavy decline. The main silver contract 2606 closed at 17,625 yuan/kg, down 1,176 yuan/kg from the previous settlement price, a 6.25% drop. 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. Notably, silver showed a technical rebound after hitting the low, with intraday volatility approaching 2,500 points, reflecting fierce market battles.

Gold was similarly under pressure. The Shanghai gold main contract fell 3.83% to 10.39 yuan/gram. On the international front, New York gold prices repeatedly broke below $4,900, $4,800, and $4,700, forming a clear breakdown trend, which also dragged domestic prices lower.

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

Regarding this round of sharp declines in gold and silver, institutions generally attribute the decline to the marginal tightening of liquidity conditions and the renewed hawkish expectations in global monetary policy.

Xie Mingyang, analyst at Jinyu Futures, pointed out that from a fundamental perspective, the market is currently facing dual negative impacts from liquidity shocks and tightening 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 in the baseline scenario. The Fed’s hawkish stance is negative for gold and silver prices; on the other hand, recent Middle East tensions have intensified, raising concerns over energy and supply chain disruptions. Market logic continues to be dominated by inflation worries and hawkish policy shifts, with US bond yields and the dollar remaining strong.

“Under the dual pressures of economic shocks and tightening expectations, market risk appetite sharply contracts. Investors shift to cash as a preferred strategy, and gold and silver are short-term under pressure from liquidity squeezes and the resonance of rising US bond yields and the dollar,” said Xie Mingyang.

Geopolitical tensions ease marginally, and safe-haven premiums decline

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

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

Against this backdrop, concerns over further escalation of Middle East conflicts have eased, and the risk premium for energy supply disruptions has declined. Demand for precious metals as safe-haven assets has similarly weakened.

Meanwhile, major central banks worldwide 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 context of “collective hawkishness” among major economies, the US dollar’s strength has been further reinforced, continuously suppressing gold and silver prices.

The US 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, rate futures imply that traders see a very low chance of the Federal Reserve cutting rates this year.

Market outlook: Short-term weakness, caution advised

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

On one hand, the Fed’s policy path still heavily depends on inflation data, making a quick rate cut unlikely in the short term; on the other hand, the strong US dollar and US bond yields continue to exert downward pressure on gold and silver.

From a technical perspective, Xie Mingyang noted that silver recently retreated after a secondary rally, 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, it rebounded, but the overall bearish structure remains, with a high probability of further declines during the correction phase.

Guoxin Futures indicated that Shanghai gold should focus on support levels between 1,000 and 1,020 yuan/gram; Shanghai silver should watch the 17,000–17,500 yuan/kg range. If key supports are broken, further downside could open.

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

On the trading front, institutions recommend investors 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 experiencing a phase of adjustment. The previous rally driven by “safe-haven + inflation” logic is weakening, and a new pricing trend has yet to form. Gold and silver are likely to continue oscillating while seeking a new balance zone.

Source: Securities Times