Market Overview

12 August 2020

Gold and Silver Plunge to Recruit New Zealots Underwater

Gold prices were falling down through almost all trading sessions on Tuesday with a deep plunge starting near $2030 per troy ounce in Asia to halt around $1900 for a while. Even that was not the end of the massacre for the bulls on precious metals as prices extended the slump into the early hours of a second day in a row to touch the water below $1870/toz. But the market "anchor" detected solid ground, giving a real chance to form a middle-term or at least a local bottom. So, gold changed the diving ammunition to the pilot's garment again to launch from a catapult to reach $1950/toz understratum for the beginning. 

Silver experienced the similar ebb and flow as the market's sentiment transformation led the prices from $29 per troy ounce highs just several days ago to a much lower $23.35 correction level this morning. Soon after that, before the European noon, silver quotes soared again to the intermediary $25-26 area. 

The expert community and many traders are currently discussing the reasons for such a strong downward movement, and a further effect including the hot-button issue of whether it would be even the beginning of a major trend reversal of just a sharp and severe correction. Some are referring to the U.S. bond yield rise but it was only moderate, from 0.579% to 0.675% for the benchmark ten-year Treasuries, for the last 24 hours, so it could not make the U.S. Dollar-nominated safe assets much more attractive. Most of the competing currencies fell slightly and are keeping within the usual price ranges established for the previous days. They have recouped about a half of yesterday's losses with EUR/USD still moving above the main 1.17 psychological support level and USD/CNY still below 6.95. 

The confidence in the Yuan could be considered to be a sign of rather positive expectations from the U.S.-Sino working meeting on the August 15, where both sides need to revise the implementation of "phase one" trade deal and to back off the current tensions around U.S. accusations on the proposed origin of the virus, as well as concerning restrictions for Huawei, TikTok ban, exchange of sanctions related to Hong-Kong status etc. To some extent, the possible mitigation between the U.S. and Chinese authorities and additional demand for governmental bonds may ease up a rope that was pulling the precious metal’s prices higher week by week. By the way, the investment activity in European bonds may have been really higher recently due to the program of the European Commission, which is beginning to borrow for the sake of the New Generation €750-billion cost stimulus package. 

All these reasons taken together, theoretically, could be enough to prevent most investors from buying gold that is too expensive, and thus the gold-sellers could be left alone and feel at ease in the market. Therefore, the initial decline in gold prices could lead to the triggering of numerous profit-taking orders, and then stop loss orders too. The orders were left by both the long-term investors, who opened positions several months ago, and, from the other side, by those, who bought gold at expensive prices above $2000 per troy ounce in the previous days. So, there could have been an ordinary chain reaction or domino effect to fix the results of many opened positions in the market. This is the most likely version for today, which could be considered as the base scenario since all the long-term fundamental reasons that devalued the U.S. Dollar, the Euro, and other reserve currencies during the time of the pandemic thus raising the precious metals to the skies, are still here. The search for the new bottom levels, or for the most favourable moment to catch a stronger rebound to test highs again, could become the main subject of interest for many in the market. 

Meanwhile, Russian President Vladimir Putin announced late in the afternoon on Tuesday that a nationally developed vaccine for the coronavirus, named "Sputnik-V", has been given the country’s final regulatory approval. Mr Putin said the vaccine is ready to use, and added that one of his two adult daughters had already been inoculated. “She has taken part in the experiment,” Putin said and then remarked that his daughter had a temperature of 38 degrees Celsius (100.4 Fahrenheit) just on the day of the first vaccine injection, and then it dropped to just over 37 degrees (98.6 Fahrenheit) on the following day. After the second shot of the vaccine she again had a slight increase in temperature, but then it was all over. “She’s feeling well and has a very high number of antibodies,” Putin concluded. Mass vaccination in Russia is planned to start in October, the Health Minister Mikhail Murashko said during the further discussion with the other government members online. 

This information, of course, could also serve as one of the major triggers for yesterday's sale-off for safe-haven gold since the appearance of any effective vaccine in Russia, or in some other country, could speed-up the recovery of the world economy. But it may not have a strong effect as the World's Health Organisation's (WHO) representatives, or health regulators in the U.S., are lukewarm about the Russian vaccine. They voiced doubts about whether the vaccine has really gone through adequate safety trials. WHO's experts have warned that vaccines that are not properly tested can cause harm in many ways — from a negative impact on health to creating a false sense of security or undermining trust in vaccinations. “I hope that the Russians have actually definitively proven that the vaccine is safe and effective. I seriously doubt that they've done that... We have half a dozen or more vaccines,” Anthony Fauci, one of the lead members of U.S. Coronavirus Task Force, told ABC News. “So if we wanted to take the chance of hurting a lot of people or giving them something that doesn't work, we could start doing this, you know, next week if we wanted to. But that's not the way it works,” he stated.

 

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