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Gold Plunges 1% amid Margin Calls, Rising US Dollar

Summary:
Gold futures are crashing to start the trading week, threatening to fall below ,700 for the first time since the beginning of March. The precious metal is joining the decline in the broader financial market as investors liquidate their bullion holdings to cover their margin calls. Is there more bleeding on the way? April gold futures tumbled .60, or 1.07%, to ,713.70 per ounce at 17:00 GMT on Friday on the COMEX division of the New York Mercantile Exchange. Gold prices are coming off their first weekly loss in three, slumping more than 1%. The yellow metal is down 10% year-to-date. Silver, the sister commodity to gold, fell below to kick off the trading week. May silver futures dropped %excerpt%.304, or 1.21%, to .81 an ounce. The white metal plunged 3% last week, adding to its 2021

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Gold futures are crashing to start the trading week, threatening to fall below $1,700 for the first time since the beginning of March. The precious metal is joining the decline in the broader financial market as investors liquidate their bullion holdings to cover their margin calls. Is there more bleeding on the way?

April gold futures tumbled $18.60, or 1.07%, to $1,713.70 per ounce at 17:00 GMT on Friday on the COMEX division of the New York Mercantile Exchange. Gold prices are coming off their first weekly loss in three, slumping more than 1%. The yellow metal is down 10% year-to-date.

Silver, the sister commodity to gold, fell below $25 to kick off the trading week. May silver futures dropped $0.304, or 1.21%, to $24.81 an ounce. The white metal plunged 3% last week, adding to its 2021 decline of about 6%.

It is that time of the year again: margin calls.

Archegos Capital Management, a large investment fund, dumped $30 billion in holdings that market analysts are calling “a fire sale” of individual stocks. These include ViacomCBS, Discovery, and GSX Techedu. Nomura, a Japanese financial institution, confirmed that it faced a $2 billion loss amid transactions with a US client and Credit Suisse following “a significant US-based hedge fund [that] defaulted on margin calls made last week.” Shares in Deutsche Bank, UBS, Goldman Sachs, and Morgan Stanley were also affected.

Investors are concerned that the margin call default could apply contagious pressure on the broader market. Gold is usually one of the first victims since traders will sell their metals to raise cash and pour water on the fire.

Looking ahead, gold markets are focusing on President Joe Biden’s infrastructure spending plan that could have a price-tag as high as $4 trillion. While the administration is looking at tax hikes, it might need to rely on monetary inflation to cover the bill. That said, market observers do not see higher prices until the middle of the year.

Commerzbank analysts wrote in a research note:

We see virtually no scope for noticeably higher prices until mid-year, though gold should be able to make significant gains in the second half of the year. Gold is currently lacking the support of financial investors, as buying interest is low.

A stronger greenback weighed on the metals market. The US Dollar Index (DXY), which measures the greenback against a basket of currencies, rose 0.09% to 92.85, from an opening of 92.74. The DXY is coming off a weekly gain of about 1%, elevating its year-to-date surge to 3.2%. A stronger buck is usually bad for dollar-pegged commodities because it makes it more expensive for foreign investors to purchase.

The US bond market was mostly in the green to kick off the trading week, with the benchmark 10-year Treasury yield up 0.029% to 1.689%. The one-year bill dipped 0.005% to 0.061%, while the 30-year bond picked up 0.027% to 2.394%. Rising Treasury yields are typically bearish for non-yielding bullion because it increases the opportunity cost.

In other metal markets, May copper futures tumbled $0.0365, or 0.9%, to $4.0315 per pound. May platinum futures added $9.90, or 0.84%, to $1,187.80 per ounce. May palladium futures cratered $138.10, or 5.16%, to $2,538.00 an ounce.

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Published under: Gold

Andrew Moran
I am a full-time professional writer. Prior to my self-employment, I worked as a reporter for Digital Journal covering the politics beat and The Toronto Times reporting on the city’s entertainment scene. I currently write mostly about business, marketing and finance

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