Silver fell sharply, at one point wiping out its two-day recovery, as the white metal struggled to find a floor following a historic market rout.
Spot silver plunged as much as 17% toward $73 an ounce during the Asian trading session, before paring losses to about 11% mid-morning in Europe. After a record-breaking rally that appeared to run too hot, the metal has retreated by more than a third from an all-time high last week. A rebound of the dollar triggered the unwinding of bullish positions last week and has weighed on commodities.
Precious metals have soared over the past year in a surge underpinned by speculative momentum in China, geopolitical upheaval and concerns about the US central bank’s independence. The rally came to an abrupt halt at the end of last week, with silver seeing its biggest-ever daily drop on Friday and gold plunging the most since 2013.
“Sentiment seems to have turned soggy across most asset classes, including regional equities and metals,” said Christopher Wong, a strategist at Oversea-Chinese Banking Corp. This has created “a feedback loop amid thin market liquidity,” he said.
The sudden and sharp decline in precious metals also weighed on sentiment in base metals markets, with copper falling as much as 1.5% to slip below $13,000 a ton. Meanwhile, spot gold dropped as much as 3.5% in choppy trading.
Investors had built up large positions in precious metals throughout January, including through inflows into leveraged exchange-traded products and a wave of call-options buying. When prices fell during Asian trading hours on Friday, it triggered a cascade of selling that continued into the early part of this week, and prices have continued to be exceptionally volatile since then.
Silver has always been more volatile than gold, owing to a smaller market size. Even then, recent swings stand out for their scale and speed, with price moves magnified by heavy speculative inflows and thinner trading in the over-the-counter market.
The wild swings in precious metals have meant the banks that dominate the over-the-counter spot market in London have struggled to trade with investors, as holding long or short positions, even temporarily, becomes too risky.
Higher prices have also strained the availability of credit allocated to precious metals trading desks, traders said. Thinner trading contributes to further volatility, and means activities in derivatives markets can have outsized impacts on prices.
Markets are now weighing the policy implications of Kevin Warsh’s nomination as Federal Reserve chair, with President Donald Trump saying Wednesday he would not have nominated him for the role had he expressed a desire to hike interest rates. Trump said in an NBC News interview there was “not much” doubt the Fed would lower rates again — a tailwind for precious metals, which don’t pay interest.
Gold prices are “likely to remain volatile until there is greater certainty on the monetary policy outlook,” Standard Chartered Plc analysts including Sudakshina Unnikrishnan said in a note. Some of this near-term volatility may result from investors redeeming their holdings in exchange-traded products, they said, but “structural drivers remain intact and we continue to expect a rebuild to the upside.”
Silver traded 11% lower at $78.83 an ounce as of 10:50 a.m. in London. Spot gold was down 2% at $4,881.64. Platinum and palladium also fell. The Bloomberg Dollar Spot Index, a gauge of the US currency, rose 0.2%.
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