A sudden wave of "risk-off" sentiment swept through global financial markets, triggering a sell-off in precious metals. Influenced by a sharp decline in U.S. technology stocks and rising liquidity demands, the price of gold experienced a significant drop, while silver and copper prices plummeted simultaneously. Some traders sold metal assets to cover losses in their equity positions, while other capital flowed into U.S. Treasury bonds seeking safety. Data indicated that gold prices saw an intraday maximum decline of 4.1%, silver plummeted by up to 11%, and copper prices on the London Metal Exchange fell by 2.9%, before all rebounded slightly from their lows.
Nicky Shiels from MKS PAMP SA commented that the market volatility arrived "swiftly and fiercely," clearly exhibiting characteristics of a risk asset clearance. Under extreme market stress, even safe-haven assets like gold can be sold off as investors urgently need liquidity. Market participants noted that part of the decline in gold and silver on Thursday was also related to profit-taking. The previous frenzied rally was partly driven by speculative buying, with short-term capital exiting en masse as risk sentiment reversed.
Ole Hansen, a commodity strategist at Saxo Bank, stated that trading in gold and silver remains highly dependent on sentiment and momentum, often leading to underperformance during such highly volatile trading days. Reviewing the trend, the strong rally in precious metals since 2024 accelerated noticeably last month, with momentum funds pushing gold and silver prices to consecutive new highs. However, this momentum came to an abrupt halt on January 29th, when gold recorded its largest single-day decline in over a decade, and silver saw its biggest historical drop. Since then, both metals have traded within a range in the absence of new catalysts, but with significantly increased volatility.
Fawad Razaqzada, a market analyst at Forex.com, believes that Thursday's sharp decline does not necessarily signal the start of a sustained downtrend for gold, but it does increase the likelihood of high volatility persisting in the short term. "The market has cleared a significant chunk of downside liquidity; the next move will depend on price action around key technical levels." From an institutional perspective, risk aversion stemming from AI-related uncertainties in the equity market is spilling over into the metals market. Macro strategist Michael Ball pointed out that this sell-off resembles a "momentum deleveraging" triggered by algorithmic and systematic strategies, particularly the typical behavior of programmatic trend funds reducing positions aggressively after key price levels are breached.
Despite the recent sharp declines, several banks maintain a bullish medium-to-long-term outlook on gold, arguing that the fundamental logic supporting gold prices remains unchanged. This includes geopolitical tensions, concerns about Federal Reserve independence, and a shift of capital from traditional assets (such as currencies and sovereign bonds) into physical assets. J.P. Morgan expects gold prices to potentially rise to the range of $6,000 to $6,300 per ounce within the year, while Deutsche Bank and Goldman Sachs also maintain a generally positive view.
Regarding silver, dynamics in the options market have amplified volatility. Trading was active in the May to June $125 call options for the iShares Silver Trust (SLV.US), the world's largest silver ETF. Some investors who had bought these options at previous highs chose to sell their contracts, potentially exacerbating the selling pressure. Looking ahead, traders are closely monitoring upcoming U.S. economic data, particularly core inflation indicators, to gauge the Federal Reserve's interest rate path. Generally, lower borrowing costs are favorable for non-yielding precious metal assets. At the close of U.S. markets, spot gold was down 3.15% at $4,922.3 per ounce, and silver was down over 10% at $75.31. Platinum and palladium also moved lower, while the U.S. Dollar Index saw a slight increase.
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