LAWRIE WILLIAMS: Precious metals drop like stones. Gold back below $1,700.
There seems to be no end in sight to the recent weaknesses in precious metals in the U.S. markets in particular. Shortly after they opened this week all the major precious metals seemed to run into hugely negative sentiment with gold dropping close to $30, silver well over $0.50 and the palladium hit was even more severe falling by over $150 after being in trouble, and then recovering part way, overnight in Asian markets. Platinum was down $15, while crude oil and most base metals were also slipping as were U.S. equities. One might have thought this would all be due to a sharp rise in the dollar index, but although the dollar did indeed rise, it did not do so sufficiently to cause the meltdown seen in the precious metals in particular. The Dow, however, did move back into positive territory by early afternoon, although the NASDAQ and S&P fell back.
The markets were said to be particularly nervous on the overnight news that a big fund had run into margin trouble and was being forced to offload assets but, as usual, the initial falls were probably overdone and some price recovery was being seen by 11 am New York time. Even so this will have been something of a blow to already shaky sentiment in the markets. Is it the prelude to a big equities and precious metals crash – we don’t think so yet, but it may make the equities markets even more nervous given the seemingly ever rising number of equity collapse warnings from well respected commentators.
What might provide a small degree of optimism, though. was that gold mining stocks, as represented by the XAU and HUI indexes, actually rose marginally on the day despite the gold price decline. However one has to expect another downwards kick in today’s trade if the metal price remains weak.
By Tuesday morning the precious metals decline returned, with gold falling back below $1,700 again and silver also seeing a fall. The pgms were the first to recover a little, but not that significantly with both platinum and palladium moving into positive territory. The rising palladium price will not have been too surprising given its exceedingly sharp fall on Monday which the markets may feel was overdone. The DXY dollar index moved up a little also, breaking back above 93, which will probably have been responsible, at least in part, for the weaker gold price trend.
Precious metals and equities both look to be remaining price volatile at the moment, with the pandemic spread outlook, particularly in the U.S. and mainland Europe, looking uncertain. Some European nations look to be suffering , virus spread statistics suggesting that they may have lowered restrictions prematurely, and are also suffering the impact of a more transmissible virus variant. It still remains to be seen whether the U.S., where some states have already eased virus control restrictions, will follow the European trend too. There are some dire warnings from the scientific community that this may well be the case. In the words of Yogi Berra ‘It ain’t over ‘til it’s over’.
30 Mar 2021