International gold and silver prices, which had been on a steep rise, turned sharply lower. Analysts said the pullback pressure mounted as profit-taking poured in after the recent record surge and major exchanges raised margin requirements.
According to Bloomberg News, international spot gold was transacted at $4,345.77 per ounce as of 9:25 a.m. on the 30th in Korea. That is 4.5% lower than the all-time high of $4,549.92 set on the 27th.
At the same time, spot silver was $72.6678 per ounce, plunging 13.5% compared with the record $84.0075 reached the previous day.
The pullback is seen as the result of profit-taking demand surfacing in earnest after the surge. The Financial Times analyzed that profit-taking increased after the recent jump in precious metals and that margin hikes by major exchanges acted as a negative factor.
In fact, the Chicago Mercantile Exchange said in a notice on the 26th that it would raise margins for major metal futures contracts, including gold and silver, after the 29th. When margins rise, the expense of maintaining leveraged positions increases, raising the likelihood that investors will sell and pull back funds.
Rashabh Amin, multi-asset portfolio manager at U.S. asset manager Allspring Global Investments, said in an interview with the FT that "this move can be seen as entering a very strong correction phase rather than a simple short-term plunge that follows speculative overheating."
Bloomberg suggested the plunge indicates the rallies in gold and silver advanced too fast and too sharply. Technical indicators also point to selling dominance. Over the past two weeks, gold's 14-day relative strength index (RSI) has remained in the "overbought" zone.
RSI is an indicator that judges whether the market is overheated by the strength of buying and selling, and experts interpret this pattern as a natural pullback after a steep rally.
The correction in the silver market is seen as even more dramatic. Silver prices have surged more than 25% just since mid-month, and during that stretch the RSI far exceeded 70. Typically, an RSI of 70 or higher indicates an excessively bought condition in the short term and is taken as a sign that a price correction is imminent.
Since the start of the year, gold and silver prices have risen more than 70% and 180%, respectively. Expectations for U.S. benchmark rate cuts, rising geopolitical tensions, concerns about a weak dollar, and expanding investment and industrial demand have combined to drive the move.
Bloomberg added that, in silver's case in particular, expanded investment demand in China, inflows via exchange-traded funds (ETF), and the gold-to-silver price ratio are key gauges. The gold-silver price ratio shows how many times gold is the price of silver; after exceeding 100-to-1 early this year, the ratio fell to 61-to-1 on the 29th of this month.