If you don’t know, today Gold (-10%), Silver (-27%) and Platinum (-18%) experienced a spectacular crash event. These were the largest single day price drops we can remember in precious metals markets and appear to us, to be targeted attacks on leveraged speculators.
We estimate total losses today in these markets at nearly 5.5 Trillion USD. This is a very big deal and will continue to ripple through the rest of financial markets throughout the coming month.
So how can this happen you might be asking?
Unfortunately, this happens due to the structure of these markets. It is rather easy for speculators to push on prices in precious metals markets due to the amount of money they are allowed to borrow on the futures exchange.
The CME allows “investors” to put just 5% down on gold and just 9% down on silver to “buy” these metals. That means that I can control 20x the dollar amount of gold than funds I have invested.
For months, speculators have been using borrowed money to push prices up in gold and silver. Today, volume and prices went the other way and the margin calls piled up.
A margin call happens when the price falls enough to force investors to add capital to trading positions to protect the exchange. Today’s price declines were so rapid that many speculators were forced to liquidate their holdings into the crash, which obviously accelerated the selling pressure.
While we don’t have names yet, expect to hear about many funds and traders that lost everything today in the crash.
We don’t have any direct exposure to today’s crash, but are concerned about the domino effects of today’s losses. When that much money gets evaporated that quickly, is tends to cause serious damage in the system.
There are going to be many investors that are forced to sell other holdings in stocks, bonds or other assets to cover their losses today in precious metals. It will take time to mend this gash.
We will be closely monitoring momentum stocks, currencies and the press for announcements on funds that are shutting down due to this crash.
