Gold experienced a dramatic plunge on Monday, marking the steepest intraday decline in nearly two years, as easing tensions in the Middle East diminished the demand for safe-haven assets. Spot gold dropped by 2.8% to a low of $2,324.96 per ounce at one point during the day, falling nearly $70 from the previous Friday's closing high-a significant retreat not seen since June 2022.
Similarly, COMEX gold futures for June concluded the day down 2.79% at $2,346.40 per ounce, hitting the lowest close since April 5 and recording the largest daily percentage loss for a front-month contract since February 3, 2023.
Last week, the conflict between Israel and Iran had heightened fears of a full-scale war in the Middle East. However, the situation showed signs of cooling off entering this week. Nasser Kanaani, a spokesperson for Iran's Foreign Ministry, downplayed the impact of Israel's attacks during a speech in Tehran on Monday, suggesting that Israel had already received a sufficient response.
Nicholas Frappell, global head of institutional markets at ABC Refinery in Sydney, noted that the Iranian government's mild reaction and hints at no retaliation have led to a reduction in the risk premium for the gold market.
Bank of America also suggested in a report on Monday that the direct impact of Middle Eastern tensions on U.S. stocks and other asset classes might not be as significant as it appeared over the past two weeks.
Following recent historic rallies, profit-taking has also applied pressure on gold prices. Since February 2020, gold has surged over 50%, with nearly 20% of that increase occurring in the last two months alone. Despite concerns that some investors might be exiting their positions prematurely, UBS suggested in a report last week that given the substantial rise in gold prices, market participants might eventually opt to sell some of their holdings to lock in profits. UBS anticipated that gold might enter a consolidation phase unless geopolitical risks escalate further.
Despite the recent drop, institutional outlook on gold remains optimistic, with investment banks including Goldman Sachs continuously raising their price targets for the metal. UBS stated that a healthy correction in gold prices indicates that the market can establish support at higher levels, which could bolster investor confidence in gold's long-term bull market.
