Is The Sell Off In Gold and Silver A Fundamental One?

Hi Mooers! A quick one as markets are moving so quickly and I am sure with the volatility and chop, you all are wondering what exactly is going on in the precious metals market?

As it stands, a number of factors have converged in the markets, leading to the sell off that we are seeing in the gold and silver markets.

Breaking Down The Move

Rewinding the clock back to last Thursday, 29th January. $Gold Futures (APR6) (GCmain.US)$ dropped sharply, after briefly crossing into the 5600 price territory. This initial drop can be attributed to aggressive profit taking following a multi-month parabolic move. In parallel, $Silver Futures (MAY6) (SImain.US)$ prices mirrored gold's price action closely as well. Over on the equities side, $Microsoft (MSFT.US)$ shares plunged the most after announcing record spending and slowing cloud sales growth. Investors holding onto the tech shares could have been forced to take profit on their gold holdings to cover back their losses.

A day later, President Trump announced his pick for Warsh as the next chair of the US Fed. This announcement led to a strong rebound in the already depreciating US dollar. Precious metals such as gold and silver that are generally priced against the $USD (USDindex.FX)$ weakened further. This led investors to quickly lock in whatever profits they had and the increase in selling volume added further downside pressure.

At the same time, given the heightened volatility in the metals market and following the two days sell off in gold and silver, $CME Group (CME.US)$ raised margins on their futures products. Clients who did not have adequate collateral would have to either put up more or face the real possibility of margin calls. This move would definitely push out a whole lot of smaller retail players who do not have enough cash to make the deposits.

Conclusion

All in, global fundamentals remain largely unchanged. However, a convergence of:

Profit-taking, liquidation to meet margin requirements and a sense of fear due to prolonged volatility

all contributed to the sell off in gold and silver markets that we are seeing now.

Strategy:

Investors should be more cautious and not bite off more than they can chew. While long term fundamentals still favour upside in gold and silver, it would be prudent to take a smaller than usual position if looking to enter the metals market. Some tickers to check out below:

For Gold:

$SPDR Gold ETF (GLD.US)$, $Gold Trust Ishares (IAU.US)$, $Abrdn Gold ETF Trust (SGOL.US)$, $Barrick Mining (B.US)$ $Goldman Sachs Physical Gold ETF (AAAU.US)$

For Silver:

$iShares Silver Trust (SLV.US)$ , $Sprott Physical Silver Trust (PSLV.US)$, $Abrdn Silver ETF Trust (SIVR.US)$, $ProShares Ultra Silver (AGQ.US)$, $Pan American Silver (PAAS.US)$

Prepared by:

Moomoo Singapore
Isaac Lim CMT, CFTe
Chief Market Strategist

Disclaimer: This report is provided for informational and general circulation purposes only and should not be construed as an offer, solicitation, or recommendation for the purchase or sale of securities, futures, or other investment products. It does not take into consideration any particular needs of any person. This advertisement has not been reviewed by the Monetary Authority of Singapore.

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