Gold drops below $4,000 as Wall Street selloff sparks liquidity crunch

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Gold drops below $4,000

Highlights

Gold rebounds above $4,015 after a sharp selloff.
AI stock losses trigger demand for cash.
Rising oil prices complicate the Fed outlook.

Spot gold fell 0.22% to $4,015.17 an ounce, while December gold futures declined 0.75% to $4,030.15. Gold earlier dropped below $3,990, its lowest level since mid-July, as investors sold bullion to meet liquidity needs amid a stock market rout, according to Bloomberg.

Stock losses trigger gold liquidation

The decline followed a nearly 3% drop in bullion on Thursday, putting the metal on course for its weakest weekly performance since June. Selling intensified as investors reduced exposure to technology companies amid growing doubts about whether heavy spending on artificial intelligence will deliver sufficient returns.

Gold, typically considered a defensive investment, can come under pressure during sharp market declines when investors need immediate liquidity. Holdings are sometimes liquidated to cover margin calls, meet collateral requirements, or offset losses elsewhere, even when broader economic uncertainty would ordinarily support demand.

U.S. Treasury bonds attracted buyers during the selloff, extending gains from the previous session. That shift highlighted the unusual pressure on bullion, which failed to benefit from the decline in government bond yields.

Federal Reserve outlook offers limited support

Traders have reduced expectations of another Federal Reserve interest rate increase as concerns about economic growth intensify. Market pricing puts the probability of a quarter-point increase at next week's meeting below 10%, suggesting investors increasingly expect policymakers to avoid further tightening.

Lower interest rates generally benefit gold by reducing the opportunity cost of holding an asset that pays no interest. However, analysts at Global X ETFs and Oversea-Chinese Banking Corp. have identified liquidity pressures and persistent inflation concerns as obstacles to a sustained recovery.

Oil prices complicate the recovery

Brent crude climbed above $113 a barrel as renewed Houthi attacks on Saudi Arabia threatened energy infrastructure and regional supply routes. Higher oil prices could prolong inflation pressures, limiting the Federal Reserve's flexibility even as financial markets weaken.

Gold has lost more than 20% since the U.S.-Iran war began in late February, illustrating how sharply market conditions have changed. Silver also declined, while platinum and palladium posted modest gains.

The combination of expensive energy, uncertain monetary policy, and forced selling leaves bullion vulnerable despite its traditional defensive appeal. A lasting recovery may depend on calmer equity markets and stronger evidence that inflation is easing.

We also reported the World Gold Council sees the digital gold market expanding as tokenized holdings reach $55 billion.

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