Global markets faced a "Black Monday" on the 2nd, impacted by a confluence of factors including a hawkish shift in Federal Reserve monetary policy expectations, technical adjustment pressures, spillover effects from precious metals market volatility, and heightened concerns over overvalued tech stocks. Precious metals experienced a roller-coaster ride, crude oil markets plummeted significantly, and several stock markets saw sharp declines, with some even triggering "temporary trading halts."
International precious metals prices opened sharply lower on the 2nd. The price of gold futures on the New York Mercantile Exchange plunged to a low of $4,423.2 per ounce, down over 6% from the previous session's close; silver futures dropped to a low of $71.2 per ounce, falling more than 9%. The spot market was equally bleak, with London spot gold hitting a low of $4,402.06 per ounce, down over 10%, and silver prices tumbling to $71.312 per ounce, a staggering decline exceeding 16%. Subsequently, both gold and silver prices staged a partial recovery.
The recent violent swings in international gold and silver prices follow their ascent to fresh record highs. Compared to the historic peaks set on January 29th, the intraday low for silver on the 2nd represented a cumulative drop of 40%, while gold had fallen approximately 20% from its peak.
Analysts attribute the sharp correction in precious metals to market expectations of a more hawkish Federal Reserve monetary policy, fueled by the January 30th announcement of the nomination of former Fed Governor Kevin Warsh for the next Fed Chair. Simultaneously, the recent announcement by CME Group to raise margins for metal futures also pressured the market. Increased margin requirements typically negatively impact related contracts, as higher capital outlays can curb speculative participation, reduce liquidity, and force traders to liquidate positions.
Tim Waterer, Chief Market Analyst at KCM Trade, noted that the extreme volatility in the precious metals market has unsettled traders. Forced liquidations in precious metals, due to rising margins, spilled over into other assets; the gold and silver crash effectively created a domino effect that spread throughout the broader market.
In the crude oil market, the price of West Texas Intermediate (WTI) crude futures on the New York Mercantile Exchange fell to a low of $61.43 per barrel, while Brent crude futures in London dipped to $65.45 per barrel. Both benchmarks registered losses exceeding 5% compared to the previous closing price.
Turning to equities, South Korea's stock market suffered a heavy blow on the 2nd. The Korea Composite Stock Price Index (KOSPI) closed at 4,949.67 points, down 274.69 points from the previous session, a decline of 5.26%, which prompted the activation of a "sidecar" circuit breaker to temporarily halt program trading. Indonesia's stock market also opened sharply lower, with the Jakarta Composite Index falling over 5% at one point during the morning session. Japan's Nikkei 225 Stock Average closed down 1.25%, while the Tokyo Stock Price Index (TOPIX) fell 0.85%.
A report suggested that after a strong January rally driven by artificial intelligence fervor, stock markets reversed course last week. Investors are once again questioning the return prospects of massive investments in the AI sector, and concerns over overvalued tech stocks have resurfaced to haunt the market.
Furthermore, as risk aversion increased, the price of the cryptocurrency Bitcoin briefly fell below the $75,000 mark.
A separate report indicated that the market performance on the 2nd demonstrates increasing volatility following the sustained rally in precious metals and record-breaking highs in stock markets. Concurrently, amid repeated calls for interest rate cuts, investors are reassessing valuations and adjusting their expectations for monetary policy under a potential Fed leadership.
Peter Cardillo, Chief Market Economist at Spartan Capital Securities in New York, commented that while Warsh was previously considered a monetary policy hawk, he has recently appeared to align more closely with views. Investors are closely watching whether his future policies might be influenced by the White House, and this uncertainty is contributing to heightened market volatility.
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