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Gold Prices Tumble Amid Reports of Margin Calls

CommoditiesFeb 28, 2020 11:05AM ET
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© Reuters.

By Geoffrey Smith

Investing.com -- Gold prices fell to their lowest level in 10 days on Friday as portfolio investors appeared to liquidate positions in favor of cash and bonds, as the flight from risky assets worldwide continued at breakneck pace.

By 1100 AM ET (1600 GMT), gold futures for delivery on the Comex exchange were down 3.5% at $1,585.70, while spot gold was down 3.5% at $1,584.40.

Silver futures also tumbled, losing 5.9% to $16.62 an ounce, their lowest since early December, while platinum slid 4.9% to $860.85 an ounce.

Various reports suggested that investors’ losses on equities had become so severe in the course of the week that they were being forced to sell their precious metal holdings to meet margin calls.

For months, end-users of gold such as central banks and jewellers have been scaling back their purchases as portfolio inflows drove prices up to record highs (including a new all-time high in euro-denominated terms).

That has left the market at the mercy of hot money, ABN Amro Georgette Boele wrote in a weekly note on Friday.

“For around six months now, gold is a crowded trade,” she argued. “Investor positions are around 80% of the annual supply (mine supply and recycling) and could come to market at any time when investors change their minds.”

Boele warned that further selling may be ahead if the current bout of risk-aversion gets any more intense.

“If risk aversion were to result in a market panic, investors will find cash and very liquid assets attractive. They will probably liquidate gold investment positions,” Boele said.

Gold has radically decoupled from bond yields this week: the Fed-sensitive 2-Year Treasury yield collapsed to 0.91% on Friday from 1.38% a week earlier, while the 10-year Treasury yield tumbled to a record low of 1.15% on Friday before bouncing weakly.

Such yields reflect expectations that the Fed will cut interest rates by three times or more over the next couple of years, even though many economists argue that the economic effect of the virus is chiefly a supply shock – something to which central banks should not normally react.

St. Louis Fed President James Bullard said earlier Friday that a rate cut still isn’t the Fed’s “base scenario”, although that could change depending on the economic impact in the U.S. – essentially the position laid out in Congress by Fed Chairman Jerome Powell earlier this month.

Nordea analyst Morten Lund pointed out that the window for flagging a policy change is fast closing, as the blackout period ahead of the next Federal Open Markets Committee meeting begins at the end of next week. Neither Powell nor Vice Chairman Richard Clarida is scheduled to speak before then, Lund noted.

Gold Prices Tumble Amid Reports of Margin Calls
 

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Comments (7)
DEVAa senapathi
ADEVA Mar 01, 2020 7:06AM ET
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Dear, Analyst and Experts,Can you post your comments, which made gold to reach 1680 plus from 1540/60/90 and reverse back to 1560-1590 again in a few weeks.... please post your comments in detail ...
Sur Miv
Sur Miv Feb 29, 2020 2:48PM ET
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Buffet is right - gold is a practically useless asset. All screams of goldfunds CEOs about its magic value sound non convincing.
Lawrence Wang
Lawrence Wang Feb 29, 2020 2:48PM ET
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compared to business. but compared to cash?
Alexander Kralev
Alexander Kralev Feb 28, 2020 2:05PM ET
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Since when are bonds "a very liquid asset"?
NYSE NASDAQ
NYSE NASDAQ Feb 28, 2020 2:05PM ET
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US bonds are more liquid than gold it's highly traded all over the world
Jack Drummond
Jack Drummond Feb 28, 2020 1:21PM ET
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Bull. Speculators (gamblers) in paper gold are being reimbursed at a deep discount, I understand that. But why, exactly, are the holders of physical gold being hit as well- for the greed of paper market players? I wonder how deep the fire-sale will continue before physical gold shines in its own right? Everyone needs to note that all that glitters is really not REAL gold.
Lawrence Wang
Lawrence Wang Feb 28, 2020 1:21PM ET
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can you explain? I thought all main gold ETFs are backed by physical gold. Not cash settled like some financial futures contracts.
Heine Pedersen
Heine Pedersen Feb 28, 2020 12:31PM ET
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Lots of different explanations.. But it's funny gold goes up in the European session and then waaay down on the american. Nothing to do with petrodollars??
Damoon Taheri
Damoon Taheri Feb 28, 2020 12:31PM ET
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what a powerful economy Mr.Trump brings for US. Selling Gold to stop collapsing Markets
Jennifer McManus
Jennifer McManus Feb 28, 2020 11:17AM ET
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now THAT is funny. the most hated asset class, succumbing to wide spread margin calls. haha
 
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