Fed interest rate cut expectations cool down, gold and silver plunge! Is it still a good time to buy the dip?

Why has the market’s expectation of Fed rate cuts suddenly shifted to a more pragmatic stance?

Beijing Business Today (Reporter Meng Fanxia, Zhou Yili) Since the beginning of the year, spot gold in London and spot silver in London have risen to historical highs of $5,598.75 per ounce and $121.647 per ounce, respectively. Shortly after, the market entered a phase of fluctuation and correction. On March 19, international precious metals weakened significantly again. As of 17:35, London gold spot prices fell below $4,800 per ounce, at $4,719.3, down over 1% for the day; London silver was at $71.382 per ounce, down more than 5%; COMEX gold and COMEX silver also declined, dropping over 3.6% and 7.5%, respectively.

The domestic futures market also experienced sharp corrections. By the close on March 19, the main contract of Shanghai silver futures once dropped over 11%, breaking below 18,000 yuan per kilogram; Shanghai gold futures main contract fell more than 4.6%, at 1,062 yuan per gram.

Several industry experts pointed out that this sharp decline in precious metals is the result of multiple negative factors resonating simultaneously: rising crude oil prices increasing inflation pressure in the US, continued delay in Fed rate cut expectations, a strengthening dollar index, and passive selling by hedge funds, all contributing to rapid declines in gold and silver prices.

Wang Hongying, President of the China (Hong Kong) Financial Derivatives Investment Research Institute, said that the most direct reason for this significant drop in precious metals prices is a clear shift in market expectations regarding the Federal Reserve’s monetary policy.

“At the beginning of the year, the market generally expected the Fed to start cutting rates, but now the Fed’s stance has shifted to a pragmatic, hold-steady approach. On one hand, the geopolitical situation in the Middle East remains deadlocked, pushing oil prices sharply higher, coupled with the February US CPI (Consumer Price Index) reaching a new high since last year, and the lagging effects of high tariffs, causing market concerns that March CPI may still rise. Against this backdrop, the Fed has adopted a pragmatic approach and paused rate cuts. On the other hand, the dollar index has surged past 100, exerting obvious pressure on precious and non-ferrous metals, and combined with profit-taking by long positions from previous rallies, this has led to a rapid decline in precious metal prices,” Wang explained.

Wu Zewei, a special researcher at the Shanghai Commercial Bank, further analyzed from three major negative factors: cooling expectations of rate cuts, a strong dollar index, and forced selling by hedge funds. He noted that unlike typical geopolitical conflicts, the Middle East situation directly impacts key global commodities—crude oil. Historical data shows that every $10 increase in oil prices roughly raises US CPI year-over-year by 0.2 to 0.4 percentage points. Rising oil prices boost US inflation risks, leading to a significant downward revision of the market’s expectation for the Fed to cut rates this year—from an optimistic two cuts initially forecasted to less than one. Meanwhile, the strengthening dollar index generally puts pressure on dollar-denominated commodities like gold. Additionally, amid increased market volatility, hedge funds and other institutions are forced to sell gold to replenish liquidity and adjust asset allocations, further accelerating the decline.

So, is now a good time for ordinary investors to buy the dip?

Wang Hongying reminds that it is not the best time to allocate into precious metals now. The negative factors such as the Fed’s monetary policy and a strong dollar are still unfolding, and the downward trend in precious metals has not yet ended. Investors should avoid blindly buying during the decline to prevent paper losses.

In Wang’s view, the short-term correction in precious metals may continue for 2–3 weeks, with the April trend mainly depending on developments in the Middle East. She predicts that gold is likely to fluctuate and bottom within the $4,400–$4,600 per ounce range, which is relatively stable; silver’s key support level is at $50–$60 per ounce.

From a medium- to long-term perspective, Wang believes that the global trend of de-dollarization, ongoing geopolitical conflicts, and high fiscal deficits in many countries have not changed, and the bull market in precious metals remains structurally intact. From a risk management standpoint, investors should avoid rushing in now and wait until gold and silver fall back to their respective support zones and stabilize before gradually entering and holding medium to long term.

Wu Zewei also provided technical analysis. He stated that since 2023, gold has hardly broken below the 60-day moving average, but currently, the price has clearly fallen below this key support. This significant break suggests that gold prices may open further downside space.

“Looking at the London gold spot trend, after breaking below the 60-day moving average, the next important support zone is around $4,500–$4,550 per ounce. This level coincides with the 120-day moving average and was also a previous high point, providing multiple technical supports. If the price falls into this range, it could be a good entry point, allowing investors to buy gradually on dips and reduce average costs,” Wu concluded.