Gold, silver lose $2 trillion in 3 hours
What's the story
In a shocking turn of events, the global market for precious metals has witnessed a major meltdown. In just three hours of volatile trading, gold and silver lost nearly $2 trillion in market cap. The development comes as oil prices have stabilized and US stock market futures are showing positive signs. Adam Kobeissi's research firm, The Kobeissi Letter, has flagged this unprecedented event as a once-in-a-cycle stress phenomenon unfolding in plain sight.
Market dynamics
US 10-year note yield surges to nearly 4.4%
The US 10-year note yield has shot up to nearly 4.4% in recent weeks, as traders factor in persistent inflation and fewer rate cuts. This change has made holding gold less attractive for big investors, who are now preferring higher-yielding Treasuries. Meanwhile, the escalating Iran war has further strengthened the US dollar's position as a safe haven asset. A stronger dollar puts pressure on dollar-denominated metals while providing global investors with a more liquid place to invest their money.
Market challenges
Unprecedented sell-off fueled by high leverage
The recent sell-off in gold and silver has been exacerbated by high leverage, futures, options, and turbocharged products. These tools only work as long as prices are rising. When key price levels were breached, stop losses were triggered, margin calls came into play, and liquidity dried up on the way down. This phenomenon has created "pockets of illiquidity," where bids disappear and prices plummet within seconds.
Market correction
Gold and silver being used as ATMs
Bengaluru-based trader Naveen has called the current situation a historic liquidity event. He believes it's not a trend but a forced deleveraging process. The $2 trillion wipeout isn't surprising, but rather a margin call with the 10-year yield hitting a 4.40% 'death zone' and up about 45 basis points in three weeks. Naveen added that gold and silver are being used as ATMs to cover bleeding equity and oil positions as 'higher for longer' becomes reality.