Gold Rally Fails: Sell-Off Not Over Yet?
Gold prices weakened again at the start of the week, extending their sharpest decline in more than a decade. After a long, record-breaking rally, the market seemed to have hit the brakes—due to perceived overspeed and overcrowding.
In early trading on Monday, spot gold fell by as much as 4%. Silver also slipped by about 4%, though it remained above $80/ounce. Earlier, silver even fell as much as 12% in a single session—and recorded its largest intraday drop ever.
Former precious metals trader Robert Gottlieb believes the pressure isn't over yet. The bottom line: the market still has to prove whether gold and silver can find a strong support area. "The trade is too crowded," is roughly his message—and when positioning is too crowded, a small trigger can trigger a brutal collapse.
Over the past year, gold and silver have soared to all-time highs. The most rapid acceleration occurred in January, when investors sought safe havens due to concerns about geopolitics, "money debasement," and the independence of the Federal Reserve.
The main trigger for Friday's selloff came from news that Donald Trump would nominate Kevin Warsh as Fed chairman. The market viewed Warsh as the toughest on inflation among the candidates, leading to expectations of a tighter monetary policy—which typically strengthens the dollar, while putting pressure on dollar-priced gold.
But in reality, the market was already "ready to explode" even before that trigger occurred. High volatility and rising prices put pressure on many risk models and market participants' balance sheets. Goldman Sachs Group Inc. highlighted a large wave of call options buying that contributed to the price rise mechanically—as option sellers had to hedge by buying the asset when the price rose. The problem: when the trend reverses, the effect can be the opposite—a rapid decline.
As of 8:05 a.m. Singapore time, gold was down about 2.2% to $4,784.54/ounce, while silver was down 2.1% to $83.30. Other metals like platinum and palladium also weakened. Meanwhile, the Bloomberg Dollar Spot Index was flat after rising 0.9% in the previous session—a strengthening dollar was one of the headwinds making it harder for gold to rebound quickly.
Source: Newsmaker.id
