|
|
|
|
|
|
|
Money Metals News Alert
|
April 7, 2025 –
Gold and silver prices were hammered Thursday and Friday. Speculators who were
betting that precious metals would be subject to tariffs began selling following
the news that bullion would be exempt.
|
|
|
Trump???s announcement on
tariffs hit general stock indices hard. Stock prices were decimated with the S&P
500 down another 13% since the Wednesday afternoon announcement. Even the U.S.
dollar sold off in foreign exchange markets.
Investors were inclined to
sell pretty much everything except Treasuries. The yield on the 10-year bond
dropped by nearly a quarter percent Thursday and Friday.
|
|
|
|
Meanwhile, the price drop in gold and
silver prompted the heaviest buying in retail bullion markets since 2023. And
fewer people were inclined to sell.
|
|
|
|
Gold : Silver Ratio (as of
Friday's closing prices) – 102.4 to
1
|
|
|
|
Making Sense of Last Week???s Price Drop In
Precious Metals
|
|
|
|
Silver prices dropped 12% in the final
two trading days of last week. Gold lost 2.6%.
While gold has held up relatively
well, silver fell in tandem with the general stock market after President Trump
announced reciprocal tariffs against nations that impose a levy on goods from the
U.S.
Bullion was exempted; gold, silver,
platinum and palladium coins, rounds, and bars will not be subject to the tariff.
|
|
|
This news provided some of
the impetus for heavy selling in the futures markets.
Long speculators, who made
leveraged bets that tariffs would drive metal prices higher, discovered they had
gambled and lost.
The big sell-off
highlights a frustrating truth about bullion investing. In the short term, metal
prices are impacted, in large part, by organizations that bullion investors have
almost nothing in common with.
|
|
|
|
Shorter-term price movements are
driven by money flows in the leveraged futures markets.
In the futures market:
- Investors mostly have a
short-term mindset. The longest dated contract with major volume matures
within a few months.
- There is more than 10-to-1
leverage built into futures contracts. That often makes for weak hands.
Investors who don???t have the deep pockets or the stomach needed to hang on when a
bet goes against them will sell.
- The motivations are
entirely different. Nobody buys a futures contract because they care about
things like having something to pass on to the grandkids. In fact, a lot of the
trading isn???t even done by humans; instead it's often algorithmic or machine
trading.
- Speculators in the futures
market play a zero sum game. One party is betting on higher prices and the
counterparty is betting prices will go down.
- The playing field is not
level. There are smaller fish, with shallow pockets and without tricks and
tools at their disposal. They are often paired against whales: bullion banks with
deep pockets, plenty of extra tools and, unfortunately, a history of dirty
tricks.
- The futures market has
rules which are subject to change without notice. These changes often happen
during moments of extreme trading activity. For example, the COMEX raised margin
requirements in the middle of last week???s selloff. The move put even more long
investors underwater, thereby ramping the pressure on them to sell.
- The supply of contracts is
effectively unlimited. The Hunt brothers might be the last people who were
turned away when trying to buy a silver contract, and that was in 1980. Since
then, the bullion banks have been able to sop up any amount of demand with a
contract for everyone who wants to buy one.
In the retail bullion market:
- Investors tend to buy with
the intention of holding long term. Nearly all of the players in the market
are individual investors motivated by instincts for wealth preservation and
reducing counterparty risk.
- There is no leverage.
- There is no counterparty
when an investor buys coins, rounds, and bars – especially not a bullion
bank with a rap sheet.
- There is an actual cap on
supply. Bullion markets are limited to the metal on the shelf.
For anyone frustrated by short-term
price action in metals, here is more suggested
reading. The futures markets were created, in part, to discourage physical
ownership of gold and silver.
|
|
|
Suffice it to say, if
price discovery in gold and silver was done in the physical markets, rather than
the futures markets, the price action would be different.
Last week is a prime
example. Very few people who own physical metal saw the news regarding tariffs and
decided it was time to sell.
Rather bullion investors
saw the price drop as an opportunity to buy.
|
|
|
|
|
Friday was the busiest day in a couple
of years in terms of buying. And the number of people selling was way down.
|
|
|
|
|
|
This week's Market Update was
authored by Money Metals Director Clint Siegner.
|
|
|
|
|
|
|
|
|
|
This copyrighted material may not
be republished without express permission. Offer only available through email
promotion. Offer does not apply to previous orders and may not be combined with
any other offer or program. Special shipping rates or other restrictions may apply
to international orders. The information presented here is for general educational
purposes only. Money Metals Exchange and its staff do not act as personal
investment advisors. Nor do we advocate the purchase or sale of any regulated
security listed on any exchange for any specific individual. While our track
record is excellent, investment markets have inherent risks and there can be no
assurance of future profits. You are responsible for your investment decisions,
and they should be made in consultation with your own advisors. By purchasing from
Money Metals, you understand our company is not responsible for any losses caused
by your investment decisions, nor do we have any claim to any market gains you may
enjoy. Money Metals Exchange is not a regulated trading ???exchange??? as defined by
the CFTC and the SEC.
|
|
|
