Why gold price dropping? The price of gold in March 2022 touched the price level of 2049 which was the highest price in 2022. At that time gold seemed to be shining and many believed the price of Gold would continue to rise and even form new all-time highs.
But it turned out that the reality was very different from expectations, the price of gold began to drop then and in just two months, the price of gold dropped to the level of 1786 in May.
What exactly is the cause? Whereas gold is an asset that is considered a safe haven. Can be a hedge against inflation because history has proven that the value of gold tends to rise when inflation is high.
- 1 Gold price drops in 2022
- 2 What is the best time to buy gold?
- 3 Gold price technical analysis
- 4 Silver price drops in 2022
- 5 Silver technical analysis
- 6 Final thought
Gold price drops in 2022
At the beginning of January, the price of gold was still at the low level of 1798, the lowest price in early 2022 acted support level of 1782. On 25 January, the price rose to a high of 1853. However, the price does not last long then dropping to 1780 on 28 January 2022.
The movement of the gold price started in a reversal in February. And the price slowly started to rise, until it reached 1974 on February 24.
Even though the price had dropped to the 1882 level, the retracement that became the basis for the price rose even higher, with its peak in March 2022, the gold price reaching more than 2000 price levels.
It’s a shame that the increase had to stop there, the price of gold and silver began to decline and dropped to a low level in 1786.
We see that the contraction of gold prices in 2022 until May has experienced quite a long swing of highs and lows. From the low level of 1763 to the swing high of reaching the price level of 2070, then returning to the swing low of the range of 1786. This price is only $23 different from the low price in early January.
Why did the gold price drop in 2022?
We saw the increase in gold prices that started in February is influenced by the global situation, which was the month when the Russia vs Ukraine war started.
Concerns about security and inflation triggered many people to buy gold and as a result, the price of gold rose quite quickly. On the other side of the global economy, the war that disrupted supply chains due to sanctions imposed by the west on Russia has also fueled inflation, with Europe facing rising energy tariffs.
This situation seems favorable for gold, as one of the assets that are considered a safe haven. Gold starts to rise. However, the rise in gold prices stopped at the 2070 level, the price then slowly dropped to a swing low.
At that time, we read that inflation in the US had triggered the Fed to take steps to prevent high inflation rates. The tapering off is where the Fed begins to tighten its finances to prevent higher inflation from impacting the USD. This currency began to strengthen and the correlation of gold prices began to decline.
It didn’t stop there, the Fed’s policy of raising the benchmark interest rate by 50 basis points which was the highest increase in a decade also triggered the strengthening of the USD and made the price of gold also drop.
On the other hand, profit-taking also triggered gold prices to drop, which was accompanied by market panic, causing gold prices to continue to decline.
Global macroeconomic conditions are still predicted to slow down for recovery. The IMF predicts that in 2022, economic growth will only reach 3.6%. The projection for 2023 is only 3.3% with an inflation forecast of 5.7% to 8.7%.
This IMF projection is due to global conditions, and the Ukraine war which as a result of this conflict resulted in an economic slowdown coupled with rising food prices. Countries with a high population and weak economies can lead to social vulnerability.
The United States, currently also still trying to reduce inflation. in April US inflation still reached 8.3% although lower than March which reached 8.5%. The impact of rising interest rates does not seem to be able to reduce inflation in this country.
Geopolitical conditions can affect financial markets, not only on the price of gold but also on other commodities. A country that has a low rating due to geopolitical conditions in the country which is still considered vulnerable to security can reduce investor interest. Even though the country provides high discounts on sovereign bonds.
The Ukraine war isn’t over yet and it’s been more than a month. The political tensions that triggered the third world war still overshadow the global geopolitical conditions.
If in the past few years the trade war between America and China, became a hot topic at that time. Currently, the Ukraine war, which has American and European support, is still a hot topic of global geopolitical tensions.
Supply and demand
Gold demand in the first quarter of 2022 is still dominated by Jewelry Fabrication with a total of 517.80 tonnes. The second is from the total bar and coin with a total of 281.90 tonnes. The three ETFs and similar products totaled 268.80 tonnes. Furthermore, from the central bank net purchases were only 83.80 tonnes, the last from the technology sector reached 81.70 tonnes.
Comparing the fourth quarter of 2021, there is a decrease in demand for Jewelry fabrication, wherein in Q4 2021 this sector reached 719.20 tonnes.
The decline in demand in the Jewelry fabrication sector was mostly due to China’s lockdown, which is the country’s largest gold exporter.
The highest increase in demand occurred in ETFs and similar products wherein Q4 it was only 17.90 and in Q1 2022 it was 268.80 tonnes.
Meanwhile, central bank purchases only experienced a slight increase from 41.20 in Q4 2021 to 83.80 in Q1 2022. The technology sector experienced a slight decline from 85.90 in Q4 2021 to 81.70 in Q1 2022.
What is the best time to buy gold?
The best time to buy gold is at a price when it is considered undervalued. Someone who chooses gold as a long-term investment asset, by choosing a time when the price of gold is considered undervalued in the future allows repeat swings up.
Referring to the data we took from Goldsilver, from the price chart from 1975 to 2021, gold prices tend to rise in the first few months of each year. Then prices drop in the spring and through the summer and take off again in the fall.
Referring to the historical price data above, the conclusion the best time to buy gold is early January, March, April, mid-June, and July.
Logically, gold has intrinsic value and has proven itself to be a valuable asset since ancient times. The price will always go up when it feels too low and global conditions will go down.
Although gold prices hit a low in January, they often form higher lows than the previous year. Here is the importance of investors getting the best price for the long term. Although storing physical gold is safer, the value of gold can decrease with market prices. In contrast to leveraged CFDs, buying gold may result in a margin call.
Gold price technical analysis
Gold prices experienced a long contraction from March to May. In this year the price of gold formed a high in 2070, but then there was a wide swing to the current price of 1815.
Draw a horizontal line at the historically low price in December 2021. The support area is the range of the 1764 price zone. This point may be the key point for the lowest price that may be rejected. The current price of 1816 is only $44 from the support price point.
In the image above on the daily timeframe, the price is below Moving Average 9 by calculating the closing price. This means that according to the basic theory of moving averages, if the price is below the MA line it is a downward trend and here the indicator line acts as a dynamic resistance.
However, another indicator point of concern is the RSI level. Here the RSI level is near the oversold zone at level 32. Even though the market is still in a downtrend, price changes this week are still in the range of a low of 1790 and a high of 1835.
Hourly chart pattern
H1 time frame shows the trend of gold prices according to the current 200 EMA price above the EMA line indicates an uptrend, but the MA line slopes down to flat.
Meanwhile, Bollinger bands indicate that the price is currently in the middle band towards the upper band with support points near 1807 and highs near 1823.
On the other hand, the RSI level indicates that there is a trend balance at the level of 49. With the scenario of crossing the SMA 14 from bottom to top, it is a bullish signal.
Silver price drops in 2022
Silver and Gold prices often have a positive correlation between the two. If the price of gold goes up, the price of silver also goes up. Conversely, if the price of gold falls, the price of silver also falls.
The price of 2022 Silver also formed a March high at 27.94 price levels, which then the price contracted and hit the current low of 21.44 at the time of writing.
From March to April, the price of Silver is still with high price volatility, with a trading range at a low of 24,135 and a high of 26,273. A sharp decline occurred in May 2022 after the breakout of the support level of 24.00, the price dropped to a low of 20,547.
Why did the silver price drop?
Not differ much reason with gold, which is the reason for the price of Silver drops in 2022. China, which is the world’s biggest consumer of precious metals, including silver, has imposed a lockdown, which has slowed demand for silver. Lockdown is China’s effort to prevent the spread of the coronavirus.
Another reason is that the Fed, which will aggressively increase interest rates in an effort to reduce inflation, also contributed to the fading Silver price.
The increase in interest rates by the Fed triggers investors to choose bonds with higher gains. It is a general view if the interest rate goes up, gold and silver go down.
Countries around the world are still recovering from the coronavirus outbreak. High inflation provides support for metal commodities, but on the other hand, monetary tightening is a barrier for Silver.
The policy to raise interest rates makes people prefer to choose investment products with definite gains rather than buying metal commodities whose prices depend on market value.
But will the Fed’s aggressive move to increase interest rates be able to withstand high inflation? This is still a question because inflation is not only driven by monetary flooding, but also wars that disrupt supply chains.
High energy prices have also fueled inflation, which is mostly caused by sanctions against Russia, while many European countries depend on Russian oil.
Geopolitical conditions affect financial markets. The humanitarian tragedy that caused many lives to be lost leaves pain and requires huge sacrifices. Many people love peace but war always happens in the warring camps.
On the other hand, China, which is one of the financial hubs, also hit the stock market and precious metals, including Silver.
Supply and demand
SilverInstitute predicts that there will be an increase in demand for Silver in 2022, up to 1.112 billion ounces (Boz). The forecast is based on Silver’s demand for the photovoltaic (PV) industry which remains high. Governments that support carbon neutrality enable the expansion of green energy projects.
With the increasing demand for Silver in the photovoltaic (PV) industry, it is expected that demand will reach an all-time high.
However, the complexity of financial markets does not only look at one side. On the other hand, high inflation, and declining purchasing power may also affect the demand for silver this year.
Take data from Reuters, the demand for silver in 2022 is 539.6 million ounces in the industrial sector. Photovoltaics demand 127.0. Jewelry demand 201.8. Photography demand 28.4. Silverware demand 52.7. Bar and coin demand 279.2. Total demand 1,101.8.
Silver technical analysis
Silver price volatility in 2022 created a fairly wide swing high and swing low on the daily timeframe. XAGUSD prices were in January at a low of 21,974, rising to create a high of 24.55 in late January. In early February the price of Silver retraces at a low of 22,089, then rose to a high of 26,968 in March 2022.
The silver price trend has increased which is indicated by the EMA of 20.50 and 100 below the price in February to mid-March. While the 200 EMA which indicates a long-term trend shows a flat line acting as dynamic support and resistance.
Mid-April the price from the range of 26,126 began to wide contraction. There was a sharp decline until May reached a low of 20,625 in a downtrend.
The RSI level entered the oversold zone on May 11 at the level of 21, and came out of the oversold zone on May 13 currently the RSI is at the level of 34.
On the H1 time frame, the 200 EMA is showing a descending trend where the price is below the EMA line.
In the short-term wave, there is an upward trend impulse marked by the price above the 20 EMA and 50 EMA. The current price trend of Silver is a downtrend with the RSI 40 level with a downward sloping line.
The silver price has touched the low zone of 20,400 price level which then rose at the moment to 21,339 price level. If demand increases in this price zone. Hence Silver could again go to the longer-term swing high which is currently in the price valley.
Gold and Silver prices are currently in the valley zone as a foothold for a pullback. However, the concern that might occur is if the Fed raises interest rates again. This could trigger a decline in commodity metal prices.
However, inflationary fluctuations still overshadow the global economy. Weakening economic growth that causes slow recovery may have an impact on Gold and Silver in the long term.
Note: this article is just a personal opinion. This is not solicitation or investment advice. Forex, crypto, and CFD are risky trades. Each investor is responsible for their investment.
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