Gold and silver are plummeting: interest rate fears outweigh concerns about war

Gold and silver are falling further today and are now trading near their lowest levels in five weeks. The price of gold is down about 1.7 percent to below $4,300 per troy ounce. Silver is down nearly 3 percent and is heading toward $63.

It is notable that this decline is occurring even as tensions in the Middle East are actually escalating. Normally, such uncertainty would support the price of gold. But right now, another factor is carrying more weight: investors expect the U.S. Federal Reserve to raise interest rates again.

First, let’s look at the technical picture. For gold, a clear rejection can be seen around $4,650. Since then, the gold price has fallen further, bringing an important support level into focus. The earlier low around $4,000, in particular, is important to keep an eye on.

We see a similar picture with silver. The silver price was rejected around $70 and has since fallen sharply. The downward trend thus remains intact. Should prices fall further, the previous low around $55 will come back into focus.

The main driver behind the decline is U.S. inflation. Consumer prices rose by 0.4 percent in August. Core inflation also increased, posting its strongest monthly gain in four months.

Added to this is the higher oil price. Brent crude rose about 3 percent on Monday toward $108 per barrel after new attacks on Saudi energy infrastructure once again sparked supply concerns. This intensifies the problems in the oil market. Higher energy prices could further fuel inflation.

The market now estimates the probability at about 86 percent that the Federal Reserve will raise interest rates by 0.25 percentage points this week. Before the inflation figures were released, that probability was still around 67 percent.

Gold and silver do not pay interest. When U.S. Treasury bonds offer higher yields, it becomes relatively more attractive for investors to put their money there.

Meanwhile, the U.S. 10-year yield is approaching 5 percent, its highest level in nearly three years. At the same time, the dollar rose to its highest level in over a week. A stronger dollar also makes gold and silver more expensive for investors buying with other currencies.

As a result, much of the focus this week is on the Federal Reserve. Precious metals are not under pressure because uncertainty is easing. Rather, it is the expectation that higher interest rates are needed to combat rising inflation that is currently weighing on gold and silver.