Gold and silver, generally considered the safest assets in the global market, have suddenly fallen, shocking investors. Market research firm The Kobeissi Letter has termed it a “rare and historic liquidity shock”. In just three hours of fast and volatile trading, nearly USD 2 trillion was wiped off the market value of precious metals. Surprisingly, this fall came at a time when crude oil prices were cooling, and US stock market futures were in the green, whereas gold and silver usually rise in a war environment.
Major reasons for the decline
- Bond yields surge: The US 10-year bond yield has risen sharply to around 4.4 per cent, shifting investors’ interest away from gold and toward interest-bearing government bonds.
- Strong Dollar Pressure: Amidst the Iran war, the US dollar has once again emerged as the most reliable safe haven. The dollar’s strength has put double pressure on gold and silver prices, and investors have chosen the dollar as a safe haven.
- The reverse effect of leverage: The recent surge in gold and silver prices has led to heavy leverage in the market. As prices fell, stop losses were triggered, margin calls were issued, and forced selling accelerated the decline.
What do experts say?
According to a Bengaluru-based trader, this isn’t a normal decline, but a major liquidity event. The USD 2 trillion loss is the result of massive margin calls. Rising bond yields are repricing the entire market.
Exit of a big player?
No major investor names have been revealed at this time, but the sharp market volatility, the sudden drop in silver, and the simultaneous weakness in MCX and ETFs indicate widespread forced selling. The biggest concern is that this decline comes at a time when war is raging in the Middle East, when gold and silver are typically considered safe investments. This development has shaken the traditional notion of a “safe haven.”
