Opportunity Knocks as Gold and Silver Plunge, With Dollar Rallying

Precious metal prices plunged overnight, with gold falling by more than USD $100 per troy ounce (oz), or close to 3%, with the price now back below USD $4,000oz.  

Silver was even harder hit, falling by close to 7%, with the price breaking through the USD $60oz price point before stabilising between USD $57 and USD $57.50oz, where it is trading at the time of writing.  

The moves occurred against a backdrop of: 

• A surging U.S. Dollar, which has broken out to a one year high against a basket of major trading currencies; 

• Expectations that the U.S. Federal Reserve will soon raise interest rates, with two rate hikes now looking likely; 

• A softening in overall U.S. equity markets, chaos in Asian stock markets (South Korea’s KOSPI fell 10% in a day earlier this week), and a plunge in high-profile tech names—including the recently listed SpaceX, which is down more than 25% in the past five days. 

The precious metals themselves have also been directly impacted by sharp swings in investor positioning, particularly in leveraged/derivative markets, with all the ‘hot money’ that had helped push gold and silver to all-time highs in early January now either absent, or indeed betting on further price declines. 

We have also seen a number of banks and major trading houses significantly downgrade their gold price forecasts—a trend we expect to continue in the coming days given the price has now dropped below the psychologically significant USD $4,000oz price point.  

While this may be unpleasant for bullion holders, these are also the exact kind of circumstances typically seen when the market is approaching, or is already, completely bottoming out. 

We are also now at a price point where gold is trading within 10% of its likely ‘worst case’ bottoming out price, a subject we looked at in more detail in this recent article which was based on the history of gold pullbacks over the last 25 years.  

From an investor perspective, this makes for a wonderful buying opportunity to accumulate both primary precious metals—at a significant discount to the levels one would have had to pay just months ago. 

We will continue to take advantage of it, and are certain that many clients of ABC Bullion focused on long-term wealth creation and portfolio protection will do similar.  

Until next time.

Jordan Eliseo
General Manager, ABC Bullion

Luke Tyler
Senior Analyst, ABC Bullion

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