The tumble in precious-metals prices from their all-time highs has accelerated, with gold and silver futures suffering some of their worst daily declines on record Thursday.
Gold sank for the sixth time in the past seven trading days, losing 5.9%, or $289.20 an ounce, on Thursday. Silver futures shed 8.2% a troy ounce, bringing the total decline from a seven-session fall to around 20%.
Precious metals are usually considered a haven, offering investors safety during times or war, inflation or other market turmoil. Gold closed at a record of $5,318.40 a troy ounce in late January. So why has it fallen more than 13% since then?
Here is what investors are saying.
Interest rates
One big reason: Gold has become the latest victim of rising inflation expectations and dimming hopes of global interest-rate cuts.
Gold often thrives when rates are lower and the opportunity cost of holding the metal is low. When rates are higher, investors tend to ditch the metal in favor of other assets, such as bonds, which offer steady income.
Central banks in the U.S. and Europe this week signaled that rates might not come down as fast as investors had been expecting as war in the Middle East and the resulting energy shock have clouded their outlooks for inflation and economic growth.
“Prior to the war, money markets were expecting two Fed cuts,” said Aakash Doshi, global head of gold and metals strategy at State Street Investment Management. “Today the market is pricing no easing this year.”
Traders saw a similar dynamic play out in 2022, when Russia’s full-scale invasion of Ukraine led to a surge in energy prices, fanning inflation. Gold fell for seven straight months between April and October of that year.
Cooling retail investor appetite
After plowing cash into gold exchange-traded funds over the past year, individual investors’ enthusiasm for the precious metal is showing some signs of cooling.
Thursday marked the sixth straight day that they sold SPDR Gold Shares, the largest gold ETF, according to data from VandaTrack. Over that period, they have sold about $10.5 million of the ETF on a net basis, based on data through midday trading Thursday.
That is a relatively small figure compared with buying last year that reached as much as $36.8 million in one day. Still, according to analysts, the move shows that their appetite for gold is diminishing.
Some smart money is selling too
Relatively sophisticated investors are also trimming metals positions. Trend-following hedge funds, which are often referred to as CTAs and use computer algorithms to spot patterns in asset prices, have been cutting gold positions in the midst of volatility.
“CTAs were definitely in an established upward, long trend” in gold over the past six months to a year, said Tom Wrobel, director of capital consulting at Société Générale’s prime-services unit. Now, they are “probably relatively still long gold, but are risk-managing those positions and reducing those positions significantly,” he said.
Given the sharp rise in gold and silver prices over the past two years, some investors might be cashing out their gains to cover losses elsewhere in their portfolios, such as margin calls triggered by slumping stocks, said Suki Cooper, global head of commodities research at Standard Chartered. Others might be wanting to park money in cash owing to the strengthening dollar or pursue newly enticing investments, such as energy stocks.
“Liquidity needs elsewhere continue to trump geopolitical risk premium in gold,” Cooper said.
Other metals are sliding
Gold and silver aren’t the only metals selling off. Platinum and palladium, less-traded precious metals, have lost 17% and 15% this month, respectively. The industrial metals copper and aluminum have also turned lower—a sign that investors are recalibrating their expectations for global economic growth.
Aluminum prices had soared toward record highs following the start of fighting late last month and the effective closure of the Strait of Hormuz, through which Qatar ships the metal as well as liquefied natural gas, which fuels production in other regions. Futures prices in London have declined this week.
Write to Caitlin McCabe at caitlin.mccabe@wsj.com and Ryan Dezember at ryan.dezember@wsj.com