Gold prices fell, extending their biggest decline in more than a decade, as the precious metal rebounded from a record-breaking rally that had been too rapid and too aggressive. Silver also declined.
Gold fell as much as 6.3% in the spot market, while silver dropped 11.9% in Asian trading on Monday. The white metal fluctuated wildly, rising more than 3% before resuming its sharp decline. It had recorded its largest single-day drop ever in the previous session.
Robert Gottlieb, a former precious metals trader at JPMorgan Chase and now an independent market commentator, said: It's not over yet. We have to see if precious metals will find a support level. The bottom line is that trading was a bit too busy.
Over the past year, precious metal prices have surged to record highs, shocking even seasoned traders. The rally accelerated sharply in January, as investors flocked to gold and silver amid renewed concerns about geopolitical turmoil, currency devaluation, and worries about the independence of the Federal Reserve.
Causes and consequences of the sharp sell-off
The announcement by US President Donald Trump of his nomination of Kevin Warsh to lead the Federal Reserve was the catalyst for Friday's violent sell-off, as it boosted the dollar and dampened sentiment among investors who had bet on Trump's willingness to allow the currency to decline.
Traders view Warsh as the most hawkish of the final candidates in the fight against inflation, which has boosted expectations of interest rates that would support the dollar and weaken bullion denominated in the US currency.
But precious metals were already primed for sharp moves, as the large rise in prices and their volatility put pressure on traders' risk management models and budgets.
Goldman Sachs wrote in a note that a record wave of call option purchases, contracts that give holders the right to buy at a predetermined price, automatically boosted the upward momentum of prices, as sellers of these options hedged their exposure to rising prices by buying more.
Gold fell 6.9% to $4,554.57 an ounce at 2:03 p.m. Singapore time. Silver also dropped 9.6% to $77.0211. Platinum and palladium prices declined as well. Meanwhile, the Bloomberg Dollar Index, which measures the performance of the US currency, rose 0.2%, after climbing 0.9% in the previous session.
