Gold Slips Tuesday Despite Meltdown In Stocks

February 6th, 2018 by

Although stocks around the world struggled to rebound from Monday’s meltdown, the precious metals dipped slightly lower on Tuesday morning, as well.

Spot gold lost about $8 (-0.65%) at the opening bell, but the yellow metal is holding above $1,330/oz. The silver price traded mostly flat at $16.65/oz.

Meanwhile, platinum slipped 0.2% (-$2) to $987/oz. Palladium extended its string of losses, tumbling $15 (-1.5%) to just above $1,000/oz.

Equity Markets Fail to Recover From Downward Spiral

Stock futures pointed lower yet again after Monday’s massive selloff.

The widespread downturn in the markets worsened in part due to algorithm-driven selling.

Here’s a snapshot of yesterday’s performance by U.S. indices for context:

Dow Jones: -1,175.21 (-4.60%)
S&P 500: -113.64 (-4.11%)
Nasdaq: -273.42 (-3.78%)

Many would regard this correction as long overdue. Nonetheless, optimistic investors and financial news pundits alike were caught off guard by the size of the slump.

Over the course of just six trading days, the Dow has plunged 8%.

Although the losses in terms of points on Monday were the worst on record, the market turmoil is likely a natural pullback from overvalued stock prices.

In terms of percentage loss, the precipitous fall during the past week doesn’t compare to the 1987 crash that erased more than 20% from the Dow in a single day.

Not surprisingly, the Federal Reserve is scrambling to assuage market fears of rapidly rising interest rates.

The mind-boggling losses are leading to margin calls all over the place, which is exacerbating the selling pattern.

Traders covering margin calls also partly explains the dip for gold.

However, gold mining stocks rallied.

It stands to reason that the sudden death spiral for stocks means markets are experiencing significantly greater volatility.

The VIX index, Wall Street’s so-called “fear gauge,” more than doubled in yesterday’s session alone.

This huge jump in volatility followed the steady climb higher for stocks (without so much as a hiccup) throughout 2017. The VIX is now at its highest level since 2009.

Big Losses Spread Like Wildfire Around the Globe

Cryptocurrencies were not spared by the carnage, either. Bitcion prices were off another 20%, showing an interesting correlation with more traditional assets.

The sharp downward correction for U.S. stocks also dragged European indices more than 2% in the red.

In Asia, the same story played out overnight: Shares in Hong Kong dropped more than 5% while Japanese equities slumped more than 4%.

Global stocks are now mostly in the negative for the year, erasing a very strong performance in January.

Meantime, the dollar continued to move higher in early trading. The USD was up 0.4% to 89.9 on the DXY index on Tuesday.

The euro was down 0.1% to $1.235 and the yen lost 0.3% to ¥109.4. The British pound dropped below $1.39.

Investors predictably fled for safety from volatile stocks, helping to bring the 10-year Treasury bond yield back down to 2.75%.

The energy sector was off slightly. WTI crude and Brent crude slipped by 0.5% and 0.25%, respectively.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.

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