The precious metals bubble could have burst this week, and silver’s violent drop on Friday drove the group lower.
After hitting a new high of $120 per ounce earlier in the session, silver has retreated to $75 in US afternoon hours, now down 35% on the day. Gold, which until Sunday had never reached $5,000 an ounce, rose to $5,600 at one point on Thursday, but has now fallen back to $4,718, down 12% on the day.
Platinum is 24% lower and palladium 20%.
To put silver’s move into perspective, it has given back almost all of its huge January gain in the space of a few hours. While cryptocurrency bulls might be used to this type of action, only those precious metals traders who were around during the days of the Hunt Brothers in the 1980s will be familiar with that type of downside volatility.
US stocks are also selling off, with the Nasdaq down 1.25% and the S&P 500 down 0.9%.
After falling earlier in the week, cryptocurrencies, by comparison, are moving a bit sideways on Friday, holding above Thursday night’s panic lows. Bitcoin was recently trading around $83,000 off its overnight low of $81,000.
Action in the markets has been volatile all week, but this latest fight appears to have been sparked by President Trump’s choice of Kevin Warsh to replace Jerome Powell as chairman of the Federal Reserve. Conventional thinking at the moment says that Warsh was a somewhat aggressive pick, perhaps triggering the selling of risky assets.
Clear path for bitcoin?
Speaking on behalf of many cryptocurrency bulls, Paul Howard, director at trading firm Wincent, said the parabolic move in commodities in recent months had diverted risk capital from cryptocurrency markets. That dynamic may be changing now.
“Cryptocurrency markets have fallen victim to the flow of venture capital into the still popular commodity trading,” he said. It noted growing interest in options markets for upside exposure in February, with 105,000 BTC calls among the most traded contracts.
“The outlook indicates what many cryptocurrency traders are feeling right now: that their market is long overdue for commodity-style catch-up,” Howard added.
“What was supposed to be a bullish move for markets appears to have coincided with a broad sell-off in risk,” Howard said of Kevin Warsh’s nomination. “The reaction may be more instinctive as markets recalibrate.”
