Gold, silver and copper prices simultaneously fell sharply on Friday after setting record highs this week, as investors became worried and switched to profit-taking, amid expectations of strong US interest rate cuts gradually fading and the USD stabilizing again.
US President Donald Trump said on Friday that he had chosen former US Federal Reserve Governor Kevin Warsh to head the US Federal Reserve (Fed). The USD Index (DXY) – a measure of the strength of the USD against major currencies – has risen after expectations of Mr. Warsh's appointment.
The market believes that Kevin Warsh is rational and will not push for drastic interest rate cuts" - Mr. Tom Price, an analyst at Panmure Liberum, said - "General investors, with different goals such as capital preservation, are taking profits.
The rising USD makes USD-denominated metals more expensive to holders of other currencies, which could weaken demand. This relationship is used by funds in trading strategies based on buy-sell signals from quantitative models.
Investors take profits after a sharp increase in gold and silver
Since the beginning of January, gold prices have increased by 17%, while silver prices have increased by 39%. Profit-taking activities in the last trading session of the month took place after many days of thin liquidity, when small cash flows, driven by fear of missing opportunities, have triggered large price fluctuations.
Both gold and silver have reached the adjustment threshold, considering the high speculative nature and somewhat out of control of the recent increase," said Ole Hansen, Commodity Strategy Director at Saxo Bank.
Gold prices fell 4.7%, to 5,031.35 USD/ounce last night Vietnam time; while silver prices fell 11%, to 103.40 USD/ounce, after both metals recorded record highs of 5,594.80 USD/ounce and 121.60 USD/ounce respectively on Thursday's session.
Precious metals have regained their gravity," independent analyst Ross Norman commented. "This decline is quite fierce, but speculators have been reminded that these are two-way markets.
Copper prices, after hitting a record high of $14,527.50/ton on Thursday, fell 1.1% to $13,465/ton. Overall this month, copper prices still increased by about 6%, after increasing by 11% in December.
Prices are likely to remain high and fluctuate strongly as funds continue to pour capital into a relatively small capital market that has now become very crowded," said Alice Fox, an analyst at Macquarie.
Traders forecast that prices of copper, aluminum and other industrial metals listed on the exchange will continue to be under downward pressure before the Lunar New Year holiday on February 16, when China - the world's largest metal consumer - will close the market for a week.
Chinese investors will not want to hold any position in volatile markets like this," said Tom Price of Panmure. "Look at what has happened in just the past 12 hours.
