Written by Gold and Silver plummet the most in decades
Gold and silver are at the top of investors’ agendas today as well, with both metals extending Friday’s bloodbath as a perfect blend of developments forced over-leveraged positions to be liquidated. Friday was the worst day since the early 1980s for gold, dropping around 9%, while silver tumbled as much as 35%, its worst intraday collapse ever.
Both metals had surged exponentially, becoming extremely overbought due to speculative and leveraged positioning. The first cracks appeared on Thursday, when rumors hit the wires that US President Trump picked former Fed Governor Kevin Warsh, who was considered a hawk, to succeed Fed Chair Powell when his term ends in May. The nomination was confirmed on Friday, prompting both metals to tumble as mentioned, the dollar to rebound and equities to pull back.
CME margin requirements and China ETF suspension weigh
However, Warsh’s nomination alone cannot explain the mayhem in gold and silver. A series of aggressive increases in margin requirements by the CME Group forced some over-leveraged traders to jump out. On January 13, CME switched from fixed-dollar to percentage-based margins, and since then, five margin hikes have taken place, with the latest one announced on Friday.
A story in China may have also played a role. On Friday, the Shenzhen Stock Exchange halted trading of the silver SDIC ETF for a full day, which created a liquidity trap for Chinese participants, forcing them to liquidate positions in other silver ETFs and derivative contracts to hedge their SDIC exposure, adding to the root of the problem.
Having said all that, although the bleeding is continuing today, the broader fundamental picture has not changed that much, which means that the prevailing long-term uptrend could still resume. The Fed is still expected to deliver two quarter-point cuts this year, central bank demand remained firm towards the end of 2025 according to the latest data available, while geopolitical and tariff-related uncertainty stays elevated.
Dollar rebounds, RBA expected to raise rates tonight
The nomination of Warsh added fuel to the dollar’s engines, helping it to finish higher against all but one of its major counterparts - the Australian dollar. Investors remained content that Warsh is unlikely to proceed with aggressive rate cuts. However, considering that he is Trump’s selection and that Trump is obsessed with rate cuts, that outlook could change if Friday’s nonfarm payrolls disappoint by a large margin.
Besides the US NFP report, there are also three central bank decisions on the calendar for this week. The RBA will announce its decision during the Asian session Tuesday, while the BoE and the ECB are scheduled for Thursday.
Following Australia’s better-than-expected employment data and the acceleration in consumer prices, investors are assigning a 77% probability of a 25bps rate increase at this RBA gathering. Thus, a rate hike accompanied by signals that more increases are likely to follow could send the aussie higher.
Yen pulls back as Takaichi talks weaker currency
A combination of dollar strength and remarks by Japan’s PM Takaichi about the benefits of a weaker yen, pushed dollar/yen higher, to hit resistance at around 150.50. On Sunday, February 8, the snap election will take place, and it is likely to be the next big catalyst for the Japanese currency.
Should Takaichi win, the yen could give back more of its recent gains, achieved due to concerns about a coordinated US-Japan intervention move, on speculation that it will be easier for Takaichi to proceed with her fiscal agenda. The yen could strengthen if she loses, as she pledged to step down. Political uncertainty could weigh on Japan’s stock market, and the yen could attract safe-haven flows. Expectations of a less expansionary fiscal policy could also help.
Stocks slip, oil falls as Trump says US in “serious talks” with Iran
On Wall Street, all three indices finished Friday’s session in the red, with futures today pointing to further declines. Warsh’s nomination weighed on equities as well, but with investors still penciling in more rate cuts by the Fed than other central banks, and with the earnings season revealing strong results, calling for a reversal in stock indices seems unwise.
Oil prices opened with a negative gap today and slipped around 5% after the opening as US President Trump said over the weekend that Iran and Washington are in serious talks, which likely lessens the risk of the US proceeding with military action.
by XM.com
