Recently, investors have flocked to traditional safe-haven assets like gold and silver, while digital alternatives like bitcoin have struggled to maintain momentum. However, even the metals market has felt the effects of recent volatility.
Over the last year, gold has risen 56% in value, as measured by the benchmark SPDR Gold Shares (GLD) ETF. Silver has increased even more, jumping 62.6% over the past year and up 78.4% year-to-date, according to the iShares Silver Trust (SLV).
But in the past week, both metals have moved in the opposite direction. Gold has fallen 2%, while silver has dropped 5%. What’s behind the sudden drop in value — and how is bitcoin stacking up?
The why behind the drop
“A drop of more than 5% is rare,” Alexander Stahel, a resource investor in Switzerland, told Yahoo! Finance. “In theory, it would be once in hundreds of thousands of trading days.”
Both metals previously hit record highs, gold surging in price based on bets on the U.S. Federal Reserve. However, Daniela Sabin Hathorn, senior market analyst at Capital.com, told Quartz that the recent pullback was not unexpected:
“The upside in gold and silver seems to have run out of steam at the start of the week. The trade had become quite overcrowded and was running a little hot considering the levels both markets were at, so a reversal is not entirely out of the blue.”
Hawthorn believes the downturn is temporary — “both gold and silver were primed for a pullback, so there is likely some profit-taking, which has deepened the reaction,” she noted.
She added that fundamentals remain intact, with long-term support still in place. However, the strength of the recent rally may have been overextended, leaving room for sharper correction.
Factors affecting prices
According to Yahoo! Finance, the London silver market recently set record prices not seen since 1980.
The Economic Times reported that the drop in price was driven by “profit booking by investors, a stronger U.S. dollar, and easing geopolitical tensions,” all of which reduced immediate demand in the global market.
A stronger U.S. dollar typically pressures gold and silver prices because both are priced in the U.S. dollar; thus, a stronger dollar makes the investment more expensive for foreign buyers, potentially reducing demand and cascading to lower prices. On the opposite end of the spectrum, a weaker dollar can make gold and silver more approachable for international investors, boosting demand and increasing prices.
As Deseret News previously reported, some experts see precious metals, especially gold, as a safety net during economic downturns, while others caution they don’t generate income in the same way as equities or bonds.
Bitcoin’s volatility
Bitcoin, often referred to as “digital gold,” has mirrored some of the same volatility seen in traditional safe-haven assets of precious metals.
The cryptocurrency is down 3.41% as of 1:36 p.m. MDT on Wednesday, as reported by CNBC. Analysts attribute the decline to a combination of stronger Treasury yields, reduced inflows into bitcoin ETFs and shifting investor sentiment as the dollar strengthens.
On Oct. 20, bitcoin ETFs reocrded $40.47 million in outflows, continuing a four-day streak of withdrawals since mid-October, according to Mitrade.