$XAGUSD The Anatomy of the Decline in Gold and Silver: The Fed, Geopolitics, and New Demand

The precious metals market has been under intense selling pressure in recent days. Gold is trading down 0.50% at $4,432, and silver is down 0.21% at $66.20. Both metals are attempting to recover after the sharp losses experienced on Friday.

Signals from the Fed

The main pressure on precious metals stemmed from Federal Reserve Chairman Kevin Warsh's speech at the Jackson Hole symposium. Warsh emphasized that inflation has not yet reached the desired level, clearly stating that the Fed is not finished until the 2% target is reached.

These statements caused markets to raise the probability of a rate hike at the September meeting from 35% to 57-60%. The expectation of a rate hike reduces the attractiveness of non-yielding assets like gold and silver. The US 10-year Treasury yield rose to 4.73%, while the dollar index strengthened to 99.71.

Geopolitical Tensions

The recent military tensions between the US and Iran have driven up oil prices and added a new element of uncertainty to the markets. WTI rose to $86.39 and Brent to $92.14, reigniting inflation concerns. High energy prices make it difficult for central banks to ease monetary policy.

New Areas of Demand

While precious metals are under pressure in the short term, new areas of demand are emerging in the medium to long term.

A Major Move from South Korea: Mirae Asset Financial Group plans to build a digital asset business worth 150 trillion won (approximately $109 billion) through its Digital X platform. This plan aims to tokenize gold, silver, and electricity. Mirae Asset's customer assets of 1,500 trillion won constitute a significant resource for achieving this goal.

Türkiye's Gold Move: The Central Bank of the Republic of Turkey held a lira-for-6-ton gold swap auction. This move demonstrates the role gold plays in reserve management strategies.

Short and Medium-Term Outlook

Technically, gold experienced a sharp 3.2% drop on Friday. This was the largest daily loss since early June. Despite this, gold gained approximately 10% in August, exhibiting its strongest monthly performance since January.

Experts are setting the $4,300-$4,700 range for gold and $70-$85 for silver as their base scenario for the upcoming period. In an optimistic scenario, gold has the potential to rise to $5,000-$5,600 and silver to $95-120.

The upcoming US non-farm payroll data will be critical for the Fed's September decision. Weak data could reduce expectations of interest rate hikes, supporting precious metals.

The information shared here is not investment advice. Do your own research.