Gold and Silver have garnered a lot of attention in recent weeks as they showed an impressive rally that led the precious metals to break several record highs. However, the upside has run out of steam this week as silver shed around 8% and gold dropped 5%.
The two precious metals have been enjoying a rally driven by a combination of factors, including a safe haven demand on the back of escalating geopolitical tensions and fiscal constraints.
Gold had reached a new peak beyond $4,390 an ounce, a new record. On the other hand, silver reached a new peak of $54. However, the trade had become quite overcrowded and was running a little hot considering both markets’ levels.
Gold’s mix of profit-taking and shifting expectations
The sudden correction has wiped over $200 off the price of gold within hours and dragged silver down more than $3. Analysts describe the sell-off as a mix of profit-taking and shifting expectations about the US economic outlook.
Traders who had built large positions during gold’s climb appeared to lock in gains ahead of upcoming US inflation data. At the same time, a firmer dollar and modest rebound in bond yields removed some of the urgency to hold non-yielding assets such as bullion.
However, the sell-off was not triggered by any single event. Instead, it reflected a confluence of stretched valuations, reduced safe-haven demand, and a temporary pullback in speculative buying that had supported the metals since mid-year.
One of the catalysts for the pullback has been the perception of easing tensions between China and the US. As reported by Cryptopolitan, Trump said that he expects to make a trade deal after meeting with President Xi Jinping at a Pacific Rim summit in South Korea later this month.
Ten days ago, Trump surprised markets by announcing that he would impose 100% tariffs after China said it would limit its rare earth exports. However, the confirmation of willingness to resolve the issues has been enough to remove some of the risk premia in markets, at least for now.
Additionally, market data show that the correction extended beyond spot prices. Shares of gold and silver miners fell sharply, and metals-linked exchange-traded funds recorded heavy outflows. The impact was more pronounced in silver, whose market is smaller and more volatile, leaving it prone to amplified swings when liquidity tightens.
Analysts watch historical cycles
According to analysts, the only thing that will determine where gold and silver prices are headed is the price history. Past data show that whenever silver prices reached $50, or got close to it, they saw silver trade above $50 for only a short period of time.
To that end, two weeks from now, if silver prices are above $50 an ounce, then the marketplace can start to believe both gold and silver are entering new, longer-term price ranges that will continue well above what the price history of the past 50 years has shown.
However, suppose silver drops back below $50 in the next couple of weeks. In that case, history will again repeat itself, and that would suggest gold and silver are due for extended downside price corrections and even bear markets farther down the road, to continue the historical cycle of boom and bust seen in all raw commodity markets.
Stocks steady as investors gain confidence
Stocks are steady, taking comfort from a possible easing of trade tensions between the US and China. Tokyo’s Nikkei rose to a record high in Asia and dented the yen.
A broad rally sent all three major US stock indexes to a sharply higher close overnight, with chip stocks hitting a record high.
The S&P 500 rose above the flat line. The Dow Jones Industrial Average added 1% as earnings reports from blue-chip companies poured in. The tech-heavy Nasdaq Composite was also roughly flat. In Europe, the STOXX 600 rose 0.1% to trade narrowly below record highs.
On the other hand, the crypto market is still a no-go zone. The market is still down 1.22% and the fear and greed index reads a strong fear at 33. However, the king coin seems to be going up by nearly 1% in the last 24 hours.
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