Gold (GC=F) tumbled as much as 4% on Tuesday as a sharp move higher in the US dollar put pressure on precious metals and investors went risk-off across the broader market.
Bullion touched its lowest level since February, wiping out gains accrued following the US and Israeli strikes on Iran over the weekend. Investors weighed the inflationary effects of higher oil prices and the growing likelihood that the Federal Reserve may cut interest rates less than previously expected.
Gold’s move lower on Tuesday was the largest one-day slide since late January.
“Should selling pressure continue to grow, then a pullback towards more significant support around $5,000 can’t be ruled out,” Trade Nation senior market analyst David Morrison said.
Read more about gold prices and today’s market action.
The pullback on Tuesday occurred as the US dollar (DX-Y.NYB) index, a measure of the greenback against a basket of currencies, neared a three-month high.
“The Dollar is going vertical,” Brookings Institution senior fellow Robin Brooks noted on X. “This kind of spike has the potential to be highly disruptive.”
Read more: How to invest in gold in 4 steps
A strong dollar often forces foreign countries to sell US Treasurys to prevent their own currencies from sliding. That sell-off raises bond yields, making bullion less attractive to hold.
A stronger greenback also makes gold and other assets more expensive for foreign buyers, weighing on demand. The entire precious metals market slid on Tuesday, with silver (SI=F) dropping 8%, platinum (PL=F) falling 10%, and palladium (PA=F) off 7%.
JPMorgan noted this week that the “risk premium” on gold prices due to the Middle East conflict could rise as much as 10%.
Historically, however, those upward movements are hard to sustain if equity markets roll over and traders are forced to sell assets to raise cash or meet margin calls.
On Tuesday, the Nasdaq Composite (^IXIC) fell as much as 2% while the S&P 500 (^GSPC) and the Dow Jones Industrial Average (^DJI) dropped more than 1%.
The London FTSE (^FTSE) index dropped 3% while stocks in Asia also tanked.
Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on X at @ines_ferre.
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