Gold and silver plunged on Thursday. Did the sharp drop in U.S. stocks trigger algorithmic selling?
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On Thursday, US stocks fell sharply, with the Nasdaq dropping over 2%. Some traders sold precious metals to cover losses in the stock market, resulting in a significant decline in gold, silver, and copper, while platinum and palladium also fell. The US dollar index rose slightly.
As concerns resurfaced about whether massive AI investments can truly be realized on a large scale, US tech stocks declined. Metal prices suddenly plunged amid suspected algorithmic trading sell-offs. Some investors were forced to exit commodity positions, including metals, to obtain liquidity, and some funds shifted to US Treasury bonds for safety.
Spot gold once fell by 4.1%, and silver plummeted by 11%. Copper prices on the London Metal Exchange (LME) dropped 2.9%. Subsequently, metal prices pared some losses.
By the end of trading in New York on Thursday, spot gold fell 3.26% to $4,918.36/ounce, maintaining a slight decline before midnight Beijing time and mainly holding above $5,050, after which a steep plunge occurred, hitting a daily low of $4,878.66. COMEX gold futures fell 3.06% to $4,942.50/ounce.
What do analysts think?
Regarding the movements of gold and silver on Thursday, industry insiders said: "Everything happened so fast—it felt like a risk-off market move. During periods of extreme market stress, even safe-haven assets like gold can be sold off by investors urgently needing liquidity."
Some of Thursday's sell-off in gold and silver also stemmed from profit-taking, as the prior rapid rally was partly driven by speculative buying.
Industry insiders pointed out that trading in gold and silver is largely driven by sentiment and momentum. On days like this, they tend to struggle.
Since 2024, gold and silver have risen strongly, with momentum buying pushing metal prices to record highs. However, this trend abruptly stopped on January 29, when gold recorded its largest single-day drop in over a decade, and silver saw its biggest drop on record. Since then, both metals have traded in a narrow range amid increased volatility, lacking new catalysts.
Some analysts believe Thursday's sudden drop in gold prices does not mean a sustained downward trend is imminent. But it does increase the likelihood of continued volatility in the short term. The market has cleared a significant area of liquidity below, and the next move will depend on price action near key technical levels.
Media analysis pointed out that despite a slight rebound, overall, metal prices suffered a severe blow in a sudden, vacuum-like plunge, more akin to systematic strategy sell-offs—common momentum-driven de-risking by CTA (Commodity Trading Advisors) groups when key price levels are breached.
Despite recent setbacks, many analysts still expect gold to resume its upward trend, believing that the factors driving the previous rally remain in place—including geopolitical tensions, doubts about the Federal Reserve's independence, and a broader shift from traditional assets like currencies and sovereign bonds to other asset classes. JPMorgan Private Bank expects gold prices to reach $6,000–$6,300/ounce by year-end, while Deutsche Bank and Goldman Sachs also maintain bullish outlooks.
The world’s largest silver ETF, iShares Silver Trust, saw heavy trading of call options with May/June $125 strike prices. At the same time, investors sold contracts previously bought at high prices, which may have further intensified selling pressure in silver.
Traders are currently watching US economic data, including the key CPI report to be released on Friday, to look for clues about the Fed's interest rate path. Lower borrowing costs typically benefit precious metals, which do not yield interest income.
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