Warsh Broke Gold
Warsh Broke Gold
Warsh Broke Gold
Gold fell 4.5 per cent on Monday to $4,672 after suffering its biggest one-day drop in more than 40 years on Friday. Silver fell 6.5 per cent to $78.67, its largest slide since the early 1980s. In early Monday trading, gold dropped as much as 9 per cent and silver as much as 15 per cent before both recovered some ground.
The rally that preceded this crash was built on one fear: that Trump would appoint a Fed chair who would let inflation run. Investors bought gold as a hedge against a politicised central bank. Prices climbed past $5,200 an ounce.
On Friday, Trump nominated Kevin Warsh. A former Fed governor. An orthodox choice. The fear trade reversed.
CME Group raised margin requirements on gold and silver futures. Leveraged positions unwound. Traders who had bought on the way up scrambled to exit at the same time. Retail investors had piled in using leveraged products including short-dated options, and their selling added to the pressure.
The contagion spread. South Korea's Kospi fell 5.3 per cent. South Africa's benchmark index, heavy with mining stocks, dropped as much as 6.9 per cent before recovering. Brent crude fell 4.4 per cent to $66.30. Copper fell 2 per cent. Aluminium fell 3 per cent.
One nomination changed the narrative. The underlying concerns about US fiscal policy and dollar strength remain. The deficits have not shrunk. The spending has not stopped. But the market no longer prices in a captured Fed.
Gold at $4,672 is still higher than it traded three months ago. The correction removed the fear premium. It did not remove the reasons people buy gold in the first place. The rally was about more than one appointment. The crash was not.
Gold Spot