Gold Plunges Over 4%, Silver Crashes 11% — Did US Stock Market Slump Trigger Algorithmic Selling in Precious Metals?
- Core View: Driven by liquidity needs triggered by the US stock market slump and algorithmic selling, precious and base metal prices suffered significant declines on Thursday. Analysts view this as a short-term risk-off move, but the fundamental factors supporting gold's long-term rise remain intact.
- Key Elements:
- Spot gold fell as much as 4.1%, silver plummeted 11%, with prices of copper, platinum, palladium, and other metals also dropping sharply, suspected to be triggered by algorithmic trading.
- Part of the selling stemmed from traders seeking liquidity to cover stock market losses, leading to the sale of traditional safe-haven assets like gold.
- Market analysis points out that the decline is related to momentum-driven de-risking operations by systematic strategies like CTAs after key price levels were breached.
- Despite heightened short-term volatility, institutions such as JPMorgan and Deutsche Bank maintain a long-term bullish view on gold, believing factors like geopolitics will support prices.
- Traders are closely watching the upcoming US CPI data to gauge the Federal Reserve's interest rate path, which will directly impact non-yielding assets like precious metals.
Original author: He Hao, Wall Street News
On Thursday, U.S. stocks plummeted, with the Nasdaq dropping over 2%. Some traders sold precious metals to cover losses in the stock market, leading to significant declines in gold, silver, copper, platinum, and palladium. The U.S. Dollar Index saw a slight increase.
Amid renewed concerns over whether massive AI investments can truly be implemented on a large scale, U.S. tech stocks declined. Metal prices suddenly fell amid suspected algorithmic trading sell-offs, forcing some investors to exit commodity positions, including metals, to obtain liquidity. Some funds also shifted to U.S. Treasuries for safety.
Spot gold fell as much as 4.1%, while silver plunged 11%. Copper prices on the London Metal Exchange (LME) dropped 2.9%. Metal prices later pared some of their losses:
At the close in New York on Thursday, spot gold fell 3.26% to $4,918.36 per ounce. Before 00:00 Beijing Time, it maintained a slight decline, mainly holding above $5,050, before experiencing a sharp plunge, hitting a daily low of $4,878.66. COMEX gold futures fell 3.06% to $4,942.50 per ounce.
At the close in New York on Thursday (February 12), spot silver fell 10.89% to $75.0942 per ounce. Before 00:00 Beijing Time, it held above $82, maintaining a slight decline, before experiencing a sharp drop, quickly falling below $76, and hitting a daily low of $74.4456 near the U.S. market close. COMEX silver futures fell 10.56% to $75.050 per ounce.
Among other important metals, COMEX copper futures fell 3.65% to $5.7740 per pound, spot platinum fell 6.19%, and spot palladium fell 5.89%.
What Do Analysts Say?
Regarding Thursday's gold and silver movements, industry insiders said: "This all happened too fast, it felt like a risk-off move. During periods of extreme market stress, even safe-haven assets like gold can be sold by investors in urgent need of liquidity."
Part of Thursday's selling in gold and silver also stemmed from profit-taking, as the previous rapid rally was partly driven by speculative buying.
Some industry insiders pointed out that for gold and silver, a significant portion of trading is still driven by sentiment and momentum. On days like this, they struggle.
Since 2024, gold and silver have rallied strongly, with momentum-driven buying pushing metal prices to repeated new highs. However, this trend came to an abrupt halt on January 29, when gold recorded its largest single-day drop in over a decade, and silver even saw its largest recorded decline. Since then, both metals have traded in a narrow range with increased volatility, lacking new catalysts.
Some analysts believe that Thursday's sudden drop in gold prices does not mean it is about to enter a sustained downtrend. But it does increase the likelihood of continued volatility in the short term. The market has cleared out a large chunk of liquidity below, and the next move will depend on how price behaves near key technical levels.
Media analysis pointed out that despite a slight rebound, overall, metal prices were hit hard by a sudden decline resembling a "vacuum drop," more akin to systematic strategy selling—the kind of momentum-driven de-risking operation common among CTA (Commodity Trading Advisor) groups when key price levels are breached.
Despite the recent sharp decline, many analysts still expect gold to resume its upward trend, believing the factors that drove the previous rally remain—including geopolitical tensions, questions about the Federal Reserve's independence, and a broader trend of shifting away from traditional assets (like currencies and sovereign bonds) to other assets. J.P. Morgan Private Bank expects gold to reach $6,000 to $6,300 per ounce by year-end, with Deutsche Bank and Goldman Sachs Group also maintaining bullish views.
The world's largest silver ETF, the iShares Silver Trust, saw significant trading in May/June $125 strike call options. Meanwhile, investors sold contracts previously bought at high levels, which may have further exacerbated selling pressure on silver.
Traders are now focusing on U.S. economic data, including the key CPI data to be released on Friday, for clues on the Federal Reserve's interest rate path. Lower borrowing costs are typically favorable for non-interest-bearing precious metals.
