Gold and silver prices open lower but begin to regain ground after huge sell-off

Commodities markets opened the week lower, after a gold and silver sell-off triggered by Donald Trump announcing his pick to chair the Federal Reserve.

The precious metals sell-off has caught the market largely by surprise, as gold and silver have consistently broken new records since the start of the year.

Gold is trading down 2.3 per cent to $4,787 an ounce, but fell as low as $4,416 at one point this morning, losing almost 20 per cent from its peak over two sessions.

Silver is trading down 2.6 per cent to around $83 this afternoon, after reaching $122 last week. It had fallen as low as $72.50 at open, wiping out nearly all its yearto-date gains. 

Oil has also eased 4 cent from a six-month high, amid a US-Iran de-escalation, while copper fell 5 per cent.

The FTSE 100 opened in the red as the steep sell-off in commodities sent jitters through equity markets, before trading up 100 points by the afternoon. 

London’s blue-chip index opened 0.5 per cent lower, led by significant falls among the miners, with some falling as much as 8 per cent. 

Endeavour Mining led the FTSE’s biggest fallers, trading down 3.9 per cent by the afternoon.  

Oil majors BP and Shell also opened lower before regaining some ground. 

What’s behind the commodities slump?

Trump’s nomination of Kevin Warsh as the next Federal Reserve chair on Friday prompted a wave of selling in risk assets, including gold and silver.

The dollar climbed in response, adding pressure on precious metals and other commodities.

Signs of a de-escalation between US and Iran was another contributing factor, as investors had piled into haven assets after various threats made by the US President.

‘The reasons for the steep declines in gold and especially silver are not immediately obvious, although forced selling on major margin calls is likely to be a factor,’ says Richard Hunter, head of markets at Interactive Investor.

‘The recovery of the US dollar will also have had an impact, given its inverse price relationship to gold, while there is also speculation of heavy unwinding of long positions which has left traders rushing for the exit at the same time.’

Lale Akoner, global market analyst at eToro said gold had become ‘over-owned through bullion ETFs, leveraged futures and call-option structures that mechanically amplified upside.’

The precious metals sell-off gained momentum after CME Group announced it was raising margins on metal futures, forcing traders to unwind positions. 

Saxo’s Neil Wilson added: ‘Things just go too frothy – this was like crypto markets at their worst; a massively crowded and leveraged long bet, and volatility that fed on itself as market makers couldn’t quote prices, leaving liquidity an issue.’ 

Akoner said fundamentals ‘remain intact with central banks continuing to anchoir demand.

‘China is the key near-term variable. Physical demand remains firm, with Shanghai prices at a premium and strong jewellery and bar buying ahead of Lunar New Year. Near term, we expect choppy two-way price action until forced selling clears.’

The outlook for silver is less clear and ‘further volatility remains likely,’ said Akoner.

Ipek Ozkardeskaya, senior analyst at Swissquote, said: ‘The sell-off has been far more brutal than I, and many, expected.

‘For silver, the rally on the way up was faster than gold’s, so the correction on the way down is faster too.’