Gold extends biggest fall in over a decade as rally snaps; silver down

Gold fell, extending its biggest plunge in more than a decade, as precious metals snapped back from a record-breaking rally that had run too far, too fast. Silver also slumped. 

Spot gold dropped as much as 4 per cent in early trading on Monday, while silver fell by a similar percentage to hold above $80 an ounce, having briefly dropped as far as 12 per cent. The white metal recorded its biggest ever intraday decline in the previous session. 

“This isn’t over,” said Robert Gottlieb, a former precious metals trader at JPMorgan Chase & Co. and now an independent market commentator. “We’ve got to see if it’s going to find support. The bottom line is that the trade was way too crowded.” 

 

Over the last year, precious metals have risen to all-time highs that have shocked even seasoned traders. The rally accelerated sharply in January, as investors piled into gold and silver on renewed concerns about geopolitical upheaval, currency debasement and the independence of the Federal Reserve. 

The trigger for Friday’s dramatic selloff was the news that US President Donald Trump would nominate Kevin Warsh to lead the Fed, which sent the dollar higher and undercut sentiment among investors who had bet on Trump’s willingness to let the currency weaken. Traders regard Warsh as the toughest inflation fighter among the final candidates, raising expectations of monetary policy that would underpin the dollar and weaken greenback-priced bullion. 

But precious metals had already been primed for extreme moves, as soaring prices and volatility strained traders’ risk models and balance sheets. A record wave of purchases of call options — contracts which give holders the right to buy at a pre-determined price — had “mechanically reinforcing upward price momentum,” Goldman Sachs Group Inc. said in a note, as the sellers of the options hedged their exposure to rising prices by buying more. 

Gold fell 2.2 per cent to $4,784.54 an ounce as of 8:05 a.m. Singapore time. Silver slid 2.1 per cent to $83.30. Platinum and palladium declined. The Bloomberg Dollar Spot Index, a gauge of the US currency, was flat after gaining 0.9 per cent in the previous session.