Precious metals have collapsed. Should we expect gold to reach $2,000?

ArmInfo. After a record rise, precious metals have now suffered their biggest decline ever. Over the past three days, gold has lost 17%, while silver has fallen more than 30%. Let's take a look at what happened.

The correction was triggered by the news that President Trump had announced a new candidate for Federal Reserve Chairman: Kevin Warsh. Markets reacted negatively to this news, as many consider Warsh an "inflation hawk," meaning he has always advocated for tight monetary policy.

But this news was merely a pretext. The main reason is that a huge number of speculators have piled into metals. As soon as the correction began, their positions were liquidated, and stop-losses were triggered.

Morgan Stanley estimates that leveraged ETFs were forced to sell $3.5 billion worth of silver and $650 million worth of gold on Friday to rebalance. Moreover, it wasn't just silver and gold that were sold, but other assets as well. Typically, people sell not the most declining assets, but the most liquid ones. As a result, for example, Microsoft shares lost more than 10% momentarily, while Bitcoin plummeted 15%.

It's impossible to say for sure yet whether this is a correction or a trend reversal. Firstly, Warsh hasn't yet been appointed; his candidacy must be confirmed by the Senate. Secondly, it's likely that the new Fed chairman won't be as threatening as he's portrayed. Bloomberg reports that Warsh has long since changed his position and now advocates for lowering rates but opposes expanding the Fed's balance sheet.

Predicting short-term price movements is very difficult. It's entirely possible that investment houses will revise their forecasts, and everyone will rush to sell. But globally, nothing has changed for gold: central banks continue to buy it for their reserves, the debts of major economies continue to grow, and the global arena remains volatile. Therefore, in our view, gold will continue to rise over the long term. Silver is seeing a similar picture, but the correction could be long-lasting, as there was significantly more speculation in this metal. (finam)