Gold and silver post steepest drops in years as rally cools

Volatility in precious metals has surged in recent days, with traders seeking to hedge against potential price drops in other parts of their portfolios, or profit from the fall.

Gold plunged the most in a dozen years while silver had its biggest drop since February 2021 on Tuesday amid a broad market selloff following a weeks-long rally that sent precious metals to successive record highs.

Spot gold fell as much as 6.3% to $4,082.03 an ounce, while spot silver fell as much as 8.7% to $47.89 an ounce.

A confluence of factors dragged down the precious metal including positive trade talks between China and the US, a stronger dollar, overstretched technicals, and uncertainty on investor positioning due to the government shutdown and the end of a seasonal buying spree in India.

Haven demand for precious metals has cooled somewhat as US President Donald Trump and China’s Xi Jinping are set to meet next week to iron out their differences on trade. Gold’s relative strength index indicates that prices have passed well into overbought territory. A strengthening US dollar has also made precious metals more expensive for most buyers.

“In the last couple of trading sessions traders have increasingly been looking over their shoulders, as concerns about a correction and consolidation have arisen,” said Ole Hansen, commodities strategist at Saxo Bank AS. “It’s during corrections that a market’s true strength is revealed, and this time should be no different, with an underlying bid likely keeping any pullback limited.”

With the ongoing US government shutdown, commodity traders have also been left without one of their most valuable tools — a weekly report from the Commodity Futures Trading Commission that indicates how hedge funds and other money managers are positioned in US gold and silver futures. Without the data, speculators may be more likely to build abnormally large positions one way or another.

“The absence of positioning data comes at a delicate time, with a potential build-up in speculative long exposure in both metals making both more vulnerable to correction,” Hansen said.

Volatility in precious metals has surged in recent days, with traders seeking to hedge against potential price drops in other parts of their portfolios, or profit from the fall. More than 2 million options contracts linked to the world’s largest gold-backed exchange traded fund were traded on both Thursday and Friday of last week, surpassing a previous record.

What Bloomberg Strategists say...

“As of now, ETFs’ gold holdings in absolute terms haven’t reached the peaks hit in the past, and rallies have often extended for much longer. But history shows that momentum eventually fades and in most cases, the buying morphs into selling. If delayed data eventually reveal a sturdier US economy than anticipated, a larger gold pullback may not be far off.”

—Tatiana Darie, Macro Strategist. For the full analysis, click here.

Silver also slumped after surging almost 80% this year — with gains driven by some of the same macro factors supporting gold, as well as a historic squeeze in the London market. Benchmark prices are trading above New York futures, which has prompted traders to ship metal to the UK capital to ease tightness. On Tuesday, silver in vaults linked to the Shanghai Futures Exchange saw the biggest one-day outflow of silver since February, while New York stockpiles have also fallen.

Gold fell 4.9% to $4,142.15 an ounce as of 11:14 a.m. in New York. Silver traded 6.7% % lower at $48.92 an ounce.