Silver and gold bars (illustrative image), PHOTO: Shutterstock
Precious metals extended their decline on Monday after a brutal selloff at the end of last week, Business Insider reports. Spot gold fell 6.4 percent to around $4,581 a troy ounce after plunging more than 10 percent on Friday.
Despite this correction, the price of gold remains up about 10% year-to-date.
Spot silver was down 9.50% to around $77.10 an ounce, after plunging as much as 36% on Friday. Trading was extremely volatile on the first day of the new week, with prices briefly climbing into positive territory before crashing as much as 16%.
The price of silver is up 3% year-to-date.
Why gold and silver prices crashed in one day
Monday's declines followed a sharp collapse on Friday after US President Donald Trump nominated economist Kevin Warsh to lead the Federal Reserve (Fed), the US central bank, after Jerome Powell's term, the Fed's current chairman, expires in May.
Warsh is perceived as more “hawk-ish” (tougher from a monetary policy perspective) and more inclined to preserve central bank independence than other candidates. This perspective has played into the investment strategy based on anticipation of the devaluation of the US national currency, pushing the US dollar higher and putting pressure on dollar-denominated commodities such as gold and silver.
Before Friday's massive sell-off, gold had been on a nearly year-long bull run, fueled by massive buying by central banks and some by individual investors amid geopolitical tensions.
What could be next for the price of gold and silver?
Daniel Hynes, senior commodities analyst at ANZ, told Bloomberg TV on Monday that global geopolitical tensions continue to support the gold market, even as price volatility is expected to remain high.
“This general breakdown of the world order that we keep hearing about and the role of the US in this context has really been at the heart of the haven purchases, and I don't see this phenomenon ending anytime soon,” he said.
However, analysts continue to caution against silver, whose gains have far outpaced gold in recent months amid speculative demand from China.
Ole Hansen, head of commodities strategy at Saxo Bank, wrote on Friday that gold is vulnerable to a correction amid last month's strong price rally. However, gold price declines will likely be met by new demand. But silver may struggle to keep up with gold.
“Its heavy reliance – under normal conditions – on industrial demand could become a pressure factor as some end users, particularly in the solar sector, increasingly look to alternative materials to protect their margins,” Hansen wrote.
“Additionally, an increase in the supply of recycled metal is expected in the coming months as holders turn to their long-held bullion, cutlery and jewelery after a seven-fold increase in prices over the past decade,” he added.
