As a result of a broad selloff that affected many asset classes Thursday morning, precious metals saw sharp drops. Analysts believe this was due to forced liquidation rather than fundamental reasons.
Gold dropped $163, or 3.21%, to $4,921, and silver fell $9, or 10.73%, to $75.22. Between 11 a.m. and 11:30 a.m. EST, prices fell sharply, the most in a single day since January 29, when gold lost almost $500 and silver lost 26% of its value.
Companies like Nvidia and Alphabet were already losing value as early as 9:00 a.m. EST, which is where the selloff started in the AI sector. Alphabet started going down at 9 a.m. and found short-term support at 10 a.m., 30 minutes before the selloff spread to other sectors.
By 10:30 a.m., the virus had spread to other U.S. stocks. By 11:00 a.m., the Nasdaq had dropped 2% and the S&P 500 had dropped 1.57 %. The selloff then spread to other goods, especially valuable metals, which were hit especially hard.
Michael Ball, a macro strategist at Bloomberg MLIV, said that the move was more likely due to systematic selling than to a lack of underlying strength: “Thursday’s risk-off tone in equities is starting to broaden out, with metals dropping suddenly on what looks like algo selling.” There was a small bounce, but metals are still taking a lot of damage from a quick drop that feels more like systematic strategy selling. This is the type of momentum-driven de-risking that you often see from the CTA community when levels give way.
The sharp drop doesn’t seem to have anything to do with a basic change in how people feel about precious metals. Some people in the market thought the move was a delayed response to Wednesday’s better-than-expected job numbers, but the timing and pattern of selling don’t support that view.
Market players will be closely watching Friday’s release of the January CPI. Most predictions call for an annual rise of 2.5%, which could affect how people feel about precious metals and the markets in general in the near future.
