The bubble in precious metals could have popped this week, with silver’s sharp drop on Friday bringing the group down.
After hitting a new high of $120 an ounce earlier in the session, silver has retreated to $75 in US afternoon hours, now down 35% for the day. Gold – which as recently as Sunday had never seen $5,000 an ounce – rose to $5,600 at one point on Thursday but has now pulled back to $4,718, down 12% for the day.
Platinum is lower by 24% and palladium by 20%.
To put silver’s move into perspective, it has given back almost all of its massive January gains in the space of a few hours. While crypto bulls may be used to such action, only the precious metals traders who were around during the days of Hunt Brothers in 1980 will be familiar with that kind 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 somewhat sideways on Friday, holding above Thursday night’s panicky lows. Bitcoin recently traded around $83,000 against its overnight low of $81,000.
Action in the markets has been volatile all week, but this latest battle appears to have been sparked by President Trump’s selection of Kevin Warsh to replace Jerome Powell as Federal Reserve chairman. Conventional thinking at the moment says that Warsh was a somewhat hawkish pick, perhaps sparking a sell-off in risk assets.
The road cleared for bitcoin?
Paul Howard, director at trading firm Wincent, spoke for many crypto bulls, saying the parabolic move in commodities in recent months had siphoned venture capital from the crypto markets. That dynamic may be changing.
“Cryptocurrency markets have been victimized by venture capital flowing into the ever-popular commodities trade,” he said. He noted increasing interest in options markets for upside exposure in February, with 105,000 BTC calls among the most actively traded contracts.
“The outlook indicates what many crypto traders are feeling right now – that their market is long overdue for a commodity-style catch-up,” Howard added.
“What was meant to be a bullish move for the markets appears to have coincided with a broad risk sell-off,” Howard said of the nomination of Kevin Warsh. “The reaction may be more of a knee-jerk reaction as markets recalibrate.”
