Precious metals plunge on Warsh Fed chair nomination, while the dollar strengthens

[Financial News]

Prices of precious metals such as gold, silver, and Platinum tumbled on the 30th (local time). Silver, in particular, known as the "poor man’s gold," crashed by more than 30%. In contrast, the value of the United States dollar (USD) surged. The move came after U.S. President Donald Trump nominated former Federal Reserve System (the Fed) Governor Kevin Warsh as the next Fed chair.
Kevin Warsh’s nomination as Fed chair eased concerns that the Fed’s independence would be undermined, which helped drive these market moves.

Spot gold prices slumped 9% to 4,895.22 dollars per troy ounce, while the front-month February futures contract sank 8.4% to 4,869.40 dollars per troy ounce.
Spot silver prices nosedived 28% to 83.45 dollars per troy ounce, and the front-month March futures contract plunged 31.4% to 78.53 dollars per troy ounce. It was the steepest decline in 46 years, since March 1980.
Other precious metals also suffered heavy losses.
April Platinum futures plunged 18.09% to 2,137.90 dollars per troy ounce, while March Palladium futures tumbled 16.50% to 1,688.00 dollars.

According to the Financial Times (FT), Tom Price, a commodities analyst at Panmure Liberum, described the day’s plunge in precious metals as "a classic sign of a market top." He said this is the typical pattern seen when a market peaks and then turns lower.
Price noted that precious metals prices had risen sharply for some time, leaving the market full of confusion and uncertainty. Investors, he explained, are struggling to find direction and are searching for clarity.
In Price’s assessment, the sharp sell-off was not just a simple correction. Instead, it signaled that precious metals prices have likely topped out and that the broader trend has reversed.


By contrast, the dollar moved firmly higher.
The US Dollar Index (DXY), which measures the USD against six major currencies, climbed 0.79% to 96.93.
The euro fell 0.9% against the dollar to 1.1855 dollars per euro, while Pound sterling slipped 0.8% to 1.3688 dollars per pound.
The dollar was also strong against the Japanese yen (JPY). It jumped 1.07% versus the Japanese yen to 154.72 yen per dollar.

Kirstine Kundby-Nielsen, an analyst at Danske Bank, told Consumer News and Business Channel (CNBC), "Kevin Warsh’s nomination is positive for the dollar," adding, "Warsh is someone who has built up experience as a central banker at the Fed." She went on, "The fact that Warsh has been nominated has eased some of the anxiety that the next Fed chair could be more political or far more dovish."

Another factor behind the dollar’s turn to strength and the collapse in gold and other precious metals was that the feared U.S. federal government shutdown (temporary halt of government operations) was averted.
On the same day, the Democratic Party of the United States (Democratic Party) and the White House reached an agreement on a short-term spending bill.
They agreed to extend the Department of Homeland Security (DHS) budget for only two weeks, while keeping most other government departments funded through September 30.
While the Democratic Party demanded reforms to U.S. Immigration and Customs Enforcement (ICE), Trump also pledged to honor the deal, saying that a shutdown would hinder economic growth.
However, a second showdown between the Democratic Party and the Republican Party (GOP) is expected in mid-February, when the two-week temporary DHS funding expires and the debate over ICE reforms flares up again.
dympna@fnnews.com Song Kyung-jae Reporter