COMMODITIES markets tumbled on Monday as Donald Trump’s selection of Kevin Warsh to lead the Federal Reserve triggered widespread selling across precious metals, energy and industrial materials, said Reuters.
Gold dropped 5% to its lowest level in more than a fortnight, whilst silver declined more than 7%, following record highs for both metals last week. Oil fell nearly 5% from multi-month peaks and London Metal Exchange copper retreated 3%, the newswire said.
“The decision by markets to sell precious metals alongside US equities suggests investors view Warsh as more hawkish,” said Vivek Dhar, a commodities strategist at Commonwealth Bank of Australia.
A hawkish Fed stance implies interest rates will remain elevated for longer, strengthening the dollar and increasing the opportunity cost of holding non-yielding assets such as gold and silver.
Trump announced on Friday that Warsh, a former Federal Reserve governor, would succeed Jerome Powell as central bank chair in May. The appointment sparked selling across stock and commodities markets whilst lifting the dollar.
The decline accelerated after CME Group raised margins on metal futures, effective from Monday’s close, said Reuters. Higher margin requirements typically dampen speculative participation and can force traders to unwind positions, it added.
Friday saw the steepest one-day decline in spot gold since 1983, with the metal falling more than 9%, whilst silver suffered its largest daily drop on record, plunging 27%.
“The scale of the unwind unfolding in gold today is something I haven’t witnessed since the dark days of the 2008 global financial crisis,” said IG market analyst Tony Sycamore.
Despite the sharp declines, Dhar said he viewed the move as “a correction and a buying opportunity rather than a fundamental shift”.
