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Gold and silver declined on Monday as the precious metals’ record-breaking rally continued for a second week and was echoed across stock markets.
Gold fell 9 per cent to $4,403 per troy ounce in early trade, but later fell 1.5 per cent to $4,790. Silver fell as much as 15 per cent to $71.33, but later recovered 1.2 per cent to $83.66.
Futures tracking the S&P 500 and Nasdaq 100 were down 0.3 percent and 0.6 percent, respectively.
Fund managers have cut some risky positions amid sharp market fluctuations. “As liquidity and volatility worsen, investors are doing well so far this year,” said Matthias Scheiber, head of multi-asset investments at fund manager Allspring.
Geopolitical tensions and fears over the independence of the US Federal Reserve have sent investors looking for safe haven assets, leading to strong gains in gold and silver in recent weeks.
But US President Donald Trump’s nomination on Friday of Kevin Wersh – a former Fed governor who is seen as a conservative choice – as the next chairman of the US central bank allayed fears that Jay Powell’s successor would ease on inflation, a concern that had fueled gains in the precious metals.
Europe’s benchmark Stoxx Europe 600 recovered early losses to trade 0.6 percent higher. In Asia, South Korea’s Kospi was the worst hit and closed 5.3 percent lower.
Hao Hong, chief investment officer of Lotus Asset Management, said investors were “having to compensate for a lot of the margin on their precious metals trading”, which weighed on Asian shares.
CME Group, the world’s largest operator of derivatives exchanges, said on Friday it would raise margin requirements on gold and silver futures after prices fell sharply.
Investors said tougher margin requirements and a reduction in lending had weighed on precious metals prices, which had driven the record rally. “The upside has been remarkable and leverage has played a key role in both the rally and now the decline,” said Guy Miller, chief market strategist at insurer Zurich.
Oil fell sharply, with global benchmark Brent crude falling 4.3 percent to $66.32 a barrel. Copper and aluminium, industrial metals that had surged in the recent rally, both declined 2 per cent.
Rising demand from exchange traded funds and private investors buying physical bullion added to the rally. Investors have viewed gold as a hedge against rising fiscal spending in developed economies as well as growing concerns over geopolitical uncertainty.
Traders said this heavy participation from retail investors, which included the use of leveraged products such as short-dated options, was driving the selloff on Monday.
“In that set-up, the market can feel stable when going up, as bought on dips, but fragile when going down,” said Valerie Noel, head of trading at Sizz Group.
Raymond Cheng, chief investment officer for North Asia at Standard Chartered, said gold trading at $4,650 amid uncertainty about government spending in the US was “an opportunity to add” to the metal.
“We think the Trump risk premium is still warranted,” Cheng said. “No matter who is the Fed chairman, he will remain the US President. His fiscal policy will remain expansionary.”
South Africa’s benchmark stock index, which is exposed to the mining industry, fell as much as 6.9 percent before recovering to be down 0.6 percent on the day.
Australian-listed shares of major gold miner Newmont Corporation fell 10 percent and shares of Xijin Gold International fell 7.9 percent.
“Markets that go that high don’t tend to have sideways corrections,” said Prashant Bhayani, chief investment officer for Asia at BNP Paribas Wealth Management. “It’s no different than meme stocks.”
The dollar rose 0.2 percent against its major trading partners on Monday, while yields on 10-year US Treasuries fell 0.01 percentage point to 4.23 percent. Bond yields move inversely to prices.
Additional reporting by Camilla Hodgson. Data Visualization by Jonathan Vincent
