GOLD and silver plunged as traders booked profit following a powerful year-end rally that sent both metals to record highs, with thin market liquidity exacerbating the price swings, reports Bloomberg.
Spot gold fell as much as 5 per cent, marking the biggest intraday drop since Oct. 21 and the second time this year that the precious metal plunged that much in one day. Silver tumbled 11pc in its biggest intraday decline since September 2020. Both metals posted a sharp retreat from fresh all-time highs that triggered signals that their rally to records had run too fast, too soon.
“Don’t read into massive moves,” said Michael Haigh, head of FIC and Commodity Research at Societe Generale, adding that the end of every year tends to be “so illiquid.”
Yesterday’s decline is mostly due to profit-taking after a strong seasonal rally in both gold and silver, according to Haigh. Precious metals historically post an extremely strong end-of-year rally into the New Year. Gold delivered gains of around 4pc in that period over the last 10 years, while silver has typically advanced almost 7pc, he said.
Technical indicators for bullion supported the selloff, with the 14-day relative strength index – a gauge of buying and selling momentum – in overbought territory for the past two weeks. That signalled gold’s rally was due for a pullback.
It’s a similar situation in silver, albeit more dramatic: The white metal gained more than 25pc since mid-December, with its RSI staying well above 70. A reading of over 70 indicates that too many investors bought it in a short period.
The iShares Silver Trust, the world’s largest physically backed silver exchange-traded fund, fell as much as 10pc in its biggest drop since 2020.
Silver’s sharp reversal yesterday came hours after soaring above $84 an ounce as surging Chinese investment demand pulled the metal higher. Premiums for spot silver in Shanghai rose above $8 an ounce over London prices, the biggest spread on record.
“The speculative atmosphere is very strong,” said Wang Yanqing, an analyst with China Futures Ltd. “There’s hype around tight spot supply, and it’s a bit extreme now.”
Some exchanges are moving to rein in risk. The margins for some Comex silver futures contracts will be raised from yesterday, according to a statement from CME Group Inc. – a move that Wang said would help reduce speculation.
When an exchange raises margin requirements, traders have to put up more cash to keep their positions open. Some speculators don’t have the extra money, so they’re forced to shrink or close their trades.
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