Gold prices fell, continuing the sharpest drop in more than a decade, while silver prices fluctuated sharply in a volatile trading session after both metals fell sharply from record highs.
In the trading session on Monday, spot gold prices at one point decreased by 6.3%. Silver prices fluctuated strongly, sometimes falling to around 75 USD/ounce after previously increasing by 3.2%. This metal recorded the largest daily decrease ever in the previous session.
This is not over," said Robert Gottlieb, a former precious metal trading partner at JPMorgan Chase & Co. and currently an independent market commentator, while saying that hesitation in accepting risks will continue to limit market liquidity.
We need to wait and see if the price can find a support zone or not. In summary, trading positions have become too crowded," he said.
In the past year, the precious metal has risen to all-time highs, surprising even experienced traders. The strong increase in January, when investors massively poured money into gold and silver amid new concerns about geopolitical instability, currency devaluation and the independence of the US Federal Reserve. A wave of buying from Chinese speculators has made the momentum even more excited.
The catalyst for Friday's massive sell-off was information that US President Donald Trump would nominate Kevin Warsh as Fed head. This information pushed the USD up and weakened the sentiment of investors who had bet on the possibility that Mr. Trump would weaken the currency. Traders see Mr. Warsh as the toughest candidate in the fight against inflation among the final candidates, thereby increasing expectations that monetary policy will support the USD, while putting downward pressure on the greenbacked metals.
However, the precious metals market is ready for extreme fluctuations, as price spikes and high volatility put pressure on risk management models and trader balance sheets. According to Goldman Sachs Group Inc., the record wave of buy options, contracts that allow holders to buy at pre-determined prices have mechanically amplified the price increase momentum, as options sellers have to buy to hedge against rising prices.
As of this morning's trading session, gold prices fell 4.4%, to $4,721.29/ounce. Silver prices fell 2.2%, to $83.2965/ounce. Platinum and palladium prices also went down simultaneously. The Bloomberg Dollar Spot Index – a measure of the strength of the USD – rose 0.1%, after rising 0.9% in the previous session.
