SINGAPORE: Commodities markets slumped on Monday, led by sharp losses in precious metals, oil and industrial metals, after the selection of Kevin Warsh as the next US Federal Reserve chair triggered broad selling in risk assets.
Gold fell 5% to its lowest level in more than two weeks, while silver slid over 7%, retreating sharply after both metals hit record highs last week. Oil prices dropped nearly 5%, easing from multi-month peaks and copper on the London Metal Exchange declined 3%.
Markets interpreted Warsh’s appointment as a signal of a more hawkish Federal Reserve, said Vivek Dhar, commodities strategist at Commonwealth Bank of Australia (CBA). A hawkish Fed implies interest rates will remain higher for longer, strengthening the US dollar and increasing the opportunity cost of holding non-yielding assets such as gold and silver.
A stronger dollar also weighed on oil and base metals, Dhar added, though he maintained CBA’s forecast for gold to reach $6,000 an ounce in the fourth quarter.
US President Donald Trump named Warsh, a former Federal Reserve governor, to succeed Jerome Powell in May. The move sparked heavy selling across global equities and commodities on Friday, while boosting the dollar. Asian shares extended losses on Monday amidst volatile trading in metals ahead of a busy week of central bank meetings, earnings and economic data.
Selling in precious metals intensified after CME Group raised margin requirements on metal futures, effective from Monday’s close. Higher margins tend to curb speculative activity and prompt traders to unwind positions.
Gold suffered its steepest one-day fall since 1983 on Friday, dropping more than 9%, while silver plunged 27% in its largest daily decline on record. IG analyst Tony Sycamore said the scale of the liquidation echoed the turmoil of the 2008 financial crisis, citing forced selling and stop-loss cascades.
Oil prices also faced pressure from signs of easing US-Iran tensions, after Trump said Tehran was “seriously talking” with Washington. Meanwhile, copper and iron ore weakened amidst high inventories and soft demand ahead of China’s Lunar New Year holiday. — Reuters
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