Markets across the board caught in free fall, even precious metals
(Kitco News) - Precious metals are sharply lower across the board Thursday along with equities, bitcoin and a slew of other commodities, with traders “throwing the baby out with the bathwater” in an effort to raise cash, traders and analysts said.
Stocks for some time now have been in a free fall on worries about the impact of the coronavirus outbreak on the global economy. Early on, technology giants like Apple Inc. and Microsoft Corp. issued sales warnings. Now, cruise-ship companies are canceling trips, airline travel is down sharply and the National Basketball Association has suspended its season in a global bid to contain the outbreak, which the World Health Organization now calls a pandemic.
Shortly after the stock market opened Thursday, the S&P fell by 7% to trigger the so-called “circuit breaker” for the second time in a week. Activity was halted for 15 minutes under a rule meant to give the market a chance to regroup when severe price declines otherwise could exhaust liquidity.
“The activity is very erratic and nervous,” said Phil Flynn, senior market analyst with Price Futures Group. “Concerns about global demand destruction are rising, especially after President Trump put a travel ban on European nations for the next 30 days.”
Around 11:20 a.m. EDT, the Dow Jones Industrial Average was down by around 2,000 points since Wednesday’s close, or a loss of 8.6% for the day. The S&P 500 was down by a little more than 200 points, or 7.5%
Gold has often caught a safe-haven bid when stocks tumble, such as early in the week when the metal hit a seven-year high. But not this time. Comex June gold was down $65.70 to $1,576.60 an ounce, while May silver lost 95.1 cents to $15.825.
Veteran gold trader Kevin Grady, president of Phoenix Futures and Options LLC, said many market participants are exiting from any market where they have a profit.
“Everything is just getting crushed,” he said. “They’re selling all of their profitable positions to meet the margin calls in equities. It’s literally throwing the baby out with the bathwater to raise any capital they can to cover the margins and losses they’re receiving in equities.”
Flynn added that there also might be some jitters in the market that central banks, which previously have been large gold buyers, could resort to sales due to the economic crisis.
“I’m not hearing any specific reports about that,” he emphasized. “But I do think that’s one of the reasons why market sentiment is weak.”
Grady commented that in the current environment, gold may not be able to bounce until the downward spiral in equities stops.
“Even though lower interest rates should benefit gold, I don’t think that’s going to happen until we see some sort of turnaround in equities,” he said. “There has to be some sort of stabilization.”
Platinum group metals are also getting crushed. They often fall when commodities like copper and crude oil decline on worries about industrial demand. But in this instance, many traders had a big profit in palladium after the metal ran up to record highs this year on tight supplies amid strong automotive demand, Grady pointed out.
“These people have been long for a long time and there are a lot of profits in here,” Grady said. “They [PGMs] are getting smoked with equities.”
Nymex April platinum was $85.40 lower to $782.80 an ounce, while June palladium sank $364.30 to $1,865.
“It’s basically panic selling across the board,” said one veteran desk trader of platinum group metals. “You’re seeing what’s happening in the equities markets. It’s bit of a cash grab, and you’re seeing that roll over into the commodities space as well.”
Bitcoin was also suffering, with news reports saying the cryptocurrency was on pace for its biggest daily loss in five years. March bitcoin futures were down $1,820 to $6,035.
Meanwhile, April West Texas Intermediate crude oil was down $1.47 to $31.51 a barrel. This market has the added weight of the Russia-OPEC price war, pointed out Flynn.
But while so many markets are in a free fall, Flynn also offered caution about shorting them, or taking our bearish trades in an effort to profit from still-lower prices.
“You have to be worried about big snapbacks because you can pull a rubber band only so far and it can snap back,” Flynn said. “Even in the worst markets, you’ve got to be prepared for more volatility….You could get one headline that changes the mood and causes a short-covering rally pretty quickly.”