After a period of sustained gains, the precious metals market has abruptly hit the brakes. On March 20, domestic gold and silver futures experienced significant declines. Gold futures on the Shanghai Futures Exchange plunged nearly 4%, hitting a low of 1,002 yuan, its lowest level since early January. Silver futures fell over 6%, briefly touching around 16,100 yuan, a new low in nearly three months. During the night session, domestic gold and silver continued their decline, mirroring a sharp drop in international prices. London silver closed down 7%, while London gold fell below the $4,500 per ounce mark. Why are these traditional safe-haven assets facing selling pressure now? Institutions widely attribute the sell-off to a combination of liquidity shocks and expectations for tighter monetary policy, advising investors to remain calm and cautious amidst the heightened volatility.

The sharp decline in gold and silver prices has caught many investors who were long on these futures off guard, especially against the backdrop of escalating Middle East tensions. At the close on March 20, the domestic precious metals futures market was deeply in the red. The main silver contract for June 2024 closed at 17,625 yuan per kilogram, down 1,176 yuan from the previous settlement price, a drop of 6.25%. It hit an intraday low near 16,100 yuan, a level not seen in nearly three months. Trading volume was exceptionally high at 1.13 million contracts, while open interest fell to 219,000 contracts, a decrease of 7,961 from the previous day, indicating significant capital outflow. Notably, silver experienced a technical rebound after hitting its low, with intraday volatility reaching nearly 2,500 points, reflecting intense market speculation.

Gold futures also faced substantial pressure. The main gold contract on the Shanghai Futures Exchange fell 3.83% to close at 1,039.22 yuan per gram. Internationally, COMEX gold prices breached several key support levels at $4,900, $4,800, and $4,700, indicating a clear bearish breakout, which weighed on domestic prices. In the night session on March 20, gold and silver extended their losses. The night session closed with gold down 1.22% at 1,016.12 yuan per gram and silver down 1.77% at 17,139 yuan per kilogram. Spot gold in London fell 3.32%, breaking below the $4,500 barrier to close at $4,494.015 per ounce, while spot silver plummeted 7.12% to close at $67.596 per ounce.

Analysts largely point to marginally tighter liquidity conditions and a renewed hawkish shift in global monetary policy expectations as the primary reasons for the decline. Xie Mingyang, an analyst at Jintong Futures, noted that the market is currently grappling with a dual negative impact from liquidity shocks and expectations for tighter policy. On one hand, the Federal Reserve's cautious stance during its March meeting, where Chair Powell emphasized the need for sustained progress on inflation before considering rate cuts and discussed potential rate hikes, has created a hawkish sentiment detrimental to gold and silver. On the other hand, recent developments in the Middle East have raised concerns about energy and supply chains, keeping the market focus on inflation worries and a hawkish policy tilt, which supports stronger U.S. Treasury yields and the U.S. dollar. "Under the dual pressures of economic headwinds and tightening expectations, market risk appetite has sharply contracted. Investors are shifting towards a cash-is-king strategy, putting short-term pressure on gold and silver due to liquidity squeezes and the combined strength of U.S. Treasury yields and the dollar," Xie explained.

Beyond macroeconomic factors, changes in geopolitical expectations are also significantly influencing precious metal prices. Guoxin Futures indicated that recent signals of de-escalation have weakened the safe-haven logic that previously supported the rally in precious metals. Signals from the U.S. administration suggesting a potential pause in military escalation in the Middle East and relaxed sanctions on Iranian oil have reduced market fears of a broader conflict. This has led to a decline in the risk premium associated with potential energy supply disruptions, thereby reducing demand for gold and silver as safe-haven assets.

Concurrently, monetary policy among major global central banks is generally tilting hawkish. The Bank of England unanimously voted to hold rates but signaled potential future hikes, while the European Central Bank raised its inflation forecasts. Against this backdrop of collective hawkishness from major economies, the rationale for a stronger U.S. dollar is reinforced, continuously pressuring gold and silver prices. The U.S. dollar has gained over 2% this month alone. A stronger dollar makes dollar-denominated gold more expensive for holders of other currencies. According to the CME's FedWatch Tool, interest rate futures suggest traders see a very low probability of Fed rate cuts this year.

Looking ahead, institutions generally believe that precious metal prices will remain under pressure until there is a clear improvement in the macroeconomic and liquidity environment. The Fed's policy path remains highly dependent on inflation data, making a quick recovery in rate-cut expectations unlikely in the short term. Furthermore, the strong performance of the U.S. dollar and Treasury yields has not yet reversed, maintaining persistent downward pressure on gold and silver. From a technical perspective, Xie Mingyang pointed out that silver has retreated after a secondary peak, showing signs of a potential head-and-shoulders top pattern on larger timeframes. The recent break below the neckline suggests a continuing downtrend. Although there was a significant rebound after the sharp drop on the 20th, the overall bearish structure remains intact, with a high probability of a temporary consolidation within the downtrend before potentially testing lower levels again.

Guoxin Futures suggested closely watching the support range of 1,000-1,020 yuan per gram for gold and the 17,000-17,500 yuan per kilogram range for silver. A decisive break below these key support levels could open the door for further declines. Conversely, Nicholas Frappell, an analyst at ABC Refinery, noted that gold has held several important technical support levels on weekly charts and could potentially rebound towards the recently broken level around $4,800 per ounce.

Regarding investment strategy, institutions advise investors to strictly control their position sizes. Overall, under multiple pressures including tightening liquidity, hawkish policy expectations, and fading safe-haven demand, the precious metals market is undergoing a period of adjustment. The previous rally driven by "safe-haven demand and inflation" is weakening, and a new primary pricing driver has yet to emerge. Gold and silver are likely to continue searching for a new equilibrium range amidst ongoing volatility.