Warsh Effect and Unwind: Precious Metals Battered in Asia
Gold fell again, deepening its biggest decline in more than a decade, while silver continued its sharp reversal after a "hot" rally. In Monday's Asian session, spot gold plunged as much as 6.3%, while silver plunged as much as 11.9%—even swinging up more than 3% before being hit by heavy selling again.
According to Robert Gottlieb, the market hasn't necessarily finished "cleaning up." He believes liquidity could be thinning as traders are reluctant to increase risk, and the key now is whether prices can find support. The bottom line: previous long positions were too dense—once the trend reverses, the domino effect will be difficult to contain.
Before the collapse, precious metals had soared to record highs, surprising many market participants. The rally accelerated in January, driven by geopolitical concerns, currency debasement issues, and concerns about the independence of the Federal Reserve. Additional fuel also came from speculation from Chinese investors chasing the uptrend.
The next direction will be largely influenced by the behavior of Chinese buyers: how aggressively they “buy the dip.” The benchmark price in Shanghai is still trading at a premium to international prices, and over the weekend, buyers were reportedly busy at Shenzhen’s largest bullion market ahead of the Lunar New Year, buying jewelry and gold bars. Zijie Wu of Jinrui Futures Co. believes that high volatility and the proximity of the Lunar New Year holiday will encourage traders to reduce positions, but the price decline could actually support retail demand during the peak shopping season.
The main trigger for Friday’s sharp decline was news that Donald Trump would nominate Kevin Warsh to lead the Fed—driving the dollar to strengthen and denting sentiment that had previously bet on Trump “letting” the dollar weaken. Warsh is seen as one of the toughest candidates on inflation, raising expectations for tighter policy—and that’s usually a bad combination for dollar-priced gold.
But the market is already prone to extreme swings: soaring prices and high volatility are putting pressure on risk models and traders’ balance sheets. Goldman Sachs Group Inc. highlighted a wave of call options buying that helped “lock in” upward momentum mechanically through hedging—which, if reversed, could accelerate selling pressure. As of Monday afternoon Singapore time, gold fell 4.6% to $4,671.53/ounce and silver weakened 7.4% to $78.86, while the Bloomberg Dollar Spot Index edged up 0.1% after surging 0.9% in the previous session. (asd)
Source: Newsmaker.id
