Gold (GC=F) plunged 4% on Tuesday as a sharply higher U.S. dollar put pressure on the precious metal and investors turned risk-averse on the broader market.
Gold prices hit their lowest levels since February, erasing gains accumulated over the weekend following U.S. and Israeli attacks on Iran. Investors weighed the inflationary impact of higher oil prices and the possibility that the Federal Reserve would cut interest rates less than previously expected.
Gold prices were lower on Tuesday, posting their biggest one-day drop since late January.
“If selling pressure continues to build, a pullback to more significant support around $5,000 cannot be ruled out,” said David Morrison, senior market analyst at Trade Nation.
Learn more about gold prices and today’s market movements.
Tuesday’s pullback came as the U.S. dollar (DX-Y.NYB) index, a measure of the greenback against a basket of currencies, was trading near three-month highs.
Robin Brooks, a senior fellow at the Brookings Institution, noted on X: “The dollar is rising vertically. This surge has the potential to be highly damaging.”
Read more: How to Invest in Gold in 4 Steps
A strong dollar often forces foreign countries to sell U.S. Treasuries to prevent their currencies from devaluing. The sell-off has raised bond yields and made holding gold less attractive.
A stronger dollar also makes gold and other assets more expensive for foreign buyers, weighing on demand. The entire precious metals market fell on Tuesday, with silver (SI=F) down 8%, platinum (PL=F) down 10% and palladium (PA=F) down 7%.
JPMorgan Chase noted this week that the “risk premium” on gold prices due to conflict in the Middle East could rise by as much as 10%.
Historically, however, these uptrends have been difficult to sustain if the stock market flipped and traders were forced to sell assets to raise cash or meet margin calls.
On Tuesday, the Nasdaq Composite Index (^IXIC) fell 2%, while the S&P 500 Index (^GSPC) and the Dow Jones Industrial Average (^DJI) fell more than 1%.
London’s FTSE (^FTSE) fell 3% and Asian stocks also fell.
Ines Ferre is a senior business reporter at Yahoo Finance. Follow her on X: @ines_ferre.
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