The precious metals bubble could have burst this week, with silver’s violent drop on Friday dragging the group lower.
After hitting a new record high of $120 an ounce earlier in the session, silver returned to $75 in the afternoon in the United States, a 35% decline for the day. Gold – which as recently as Sunday had never reached $5,000 an ounce – soared to $5,600 at one point on Thursday, but has now retreated to $4,718, down 12% for the day.
Platinum is 24% lower and palladium 20% lower.
US stocks are also selling off, with the Nasdaq down 1.25% and the S&P 500 down 0.9%.
After plunging earlier in the week, cryptocurrencies, by comparison, are moving somewhat sideways on Friday, holding above Thursday night’s panic lows. Bitcoin was recently trading around $83,000, up from $81,000 overnight.
Market action has been volatile all week, but this latest bout appears to have been sparked by President Trump’s nomination of Kevin Warsh to replace Jerome Powell as head of the Federal Reserve. Current conventional thinking holds that Warsh was a somewhat hawkish choice, thus perhaps triggering the sale of risky assets.
Is the road clear for Bitcoin?
Paul Howard, director of trading firm Wincent, spoke for many crypto bulls, saying the parabolic move in commodities over the past few months had siphoned risk capital from crypto markets. This dynamic may be changing.
“Cryptocurrency markets have fallen victim to the influx of risk capital into the ever-popular commodity trading,” he said. He noted growing 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 feel right now: that their market is long overdue for a commodity-style catch-up,” Howard added.
“What was supposed to be a bullish move for the markets appears to have coincided with a risk-off sell-off,” Howard said of Kevin Warsh’s appointment. “The reaction could be more impulsive as markets recalibrate.”
