Gold plunges after biggest drop in a decade as rally unwinds

Over the last year, precious metals have risen to all-time highs that have shocked even seasoned traders

• Gold fell 6.3% after its biggest plunge in over a decade
• Silver swung sharply, recording its largest ever intraday loss
• US dollar rose after Trump nominated Kevin Warsh to lead the Fed

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Gold fell, following its biggest plunge in more than a decade, and silver whipsawed in choppy trading after a dramatic pullback from record highs.

Spot gold fell as much as 6.3% on Monday. Silver swung sharply, dropping to around $75 an ounce having earlier climbed as much as 3.2%. The white metal recorded its biggest ever intraday loss in the previous session.

“This isn’t over,” said Robert Gottlieb, a former precious metals trader at JPMorgan Chase & Co. and now an independent market commentator, adding that a reluctance to take further risk would constrain market liquidity. “We’ve got to see if it’s going to find support. The bottom line is that the trade was way too crowded.”

Over the last year, precious metals have risen to all-time highs that have shocked even seasoned traders. The rally accelerated sharply in January, as investors piled into gold and silver on renewed concerns about geopolitical upheaval, currency debasement and the independence of the Federal Reserve. A wave of buying from Chinese speculators added froth to the rally.

The trigger for Friday’s dramatic selloff was the news that US President Donald Trump would nominate Kevin Warsh to lead the Fed, which sent the dollar higher and undercut sentiment among investors who had bet on Trump’s willingness to let the currency weaken. Traders regard Warsh as the toughest inflation fighter among the final candidates, raising expectations of monetary policy that would underpin the dollar and weaken greenback-priced bullion.

But precious metals had already been primed for extreme moves, as soaring prices and volatility strained traders’ risk models and balance sheets. A record wave of purchases of call options — contracts which give holders the right to buy at a pre-determined price — were “mechanically reinforcing upward price momentum,” Goldman Sachs Group Inc. said in a note, as the sellers of the options hedged their exposure to rising prices by buying more.

Gold fell 4.4% to $4,680.76 an ounce as of 9:21 a.m. Singapore time. Silver declined 2.2% to $83.2965. Platinum and palladium declined. The Bloomberg Dollar Spot Index, a gauge of the US currency, rose 0.1% after gaining 0.9% in the previous session.