Gold and silver prices have taken a severe hammering on Monday, extending the dramatic rout that began late last week. This forms part of a widespread market sell-off affecting precious metals, oil, and cryptocurrencies, as investor sentiment shifts sharply.
Precious Metals Suffer Record Declines
Both gold and silver had reached unprecedented record highs on Thursday, only to plummet sharply following an announcement from former President Donald Trump. He revealed his nomination for the chair of the US central bank, proposing Kevin Warsh to succeed Jay Powell from May. This move alleviated market anxieties over Federal Reserve independence, leading to a significant recalibration in asset values.
The impact was most pronounced in gold and silver, traditionally viewed as safe-haven assets. By the close of trading on Friday night in the US, gold experienced its worst single-day decline since 1983, while silver saw its most substantial drop since 1980. The downward trajectory continued into Monday, with spot gold falling by an additional 7%, and silver declining by almost 11%, following a staggering 30% fall in the previous session.
Market Mechanics and Margin Calls
Market analysts attribute part of the steep declines to increased margin requirements imposed by some brokerages. During periods of heightened volatility, raising the minimum deposit needed to open or maintain leveraged positions can force investors to sell other assets to cover these margin calls. This dynamic has exacerbated the sell-off in gold and silver, putting further pressure on prices.
Early on Monday morning, gold stood at $4,480 per ounce, and silver was at $73.94. This marks a stark contrast to their recent peaks, where gold reached a record high of $5,594.82 per ounce and silver hit $121.64 during the preceding rally.
Cryptocurrencies and Oil Also Hit Hard
The market turmoil has not been confined to precious metals. Cryptocurrencies have also suffered significant losses since Friday. Bitcoin dropped below $80,000 for the first time since April over the weekend, stabilising at $75,142. Meanwhile, Brent crude oil, which was trading at $70 a barrel last week, fell to $65, reflecting broader concerns in energy markets.
Global Stock Market Implications
The sell-off is set to reverberate across global stock markets. Sharp declines in Asia, including a 3% drop in Hong Kong's Hang Seng index, are expected to influence European trading. IG forecast that the FTSE 100, which includes numerous precious metal mining and energy stocks, would open approximately 0.7% lower. In the US, futures indicated a looming decline of around 1% for the broad-based S&P 500 index.
This broad-based market shift underscores the interconnected nature of global financial assets, where developments in monetary policy and investor sentiment can trigger widespread volatility across multiple sectors.
