Gold and silver stumble at the end of best year since the 1970s

Gold is up about 64 per cent in the past 12 months. In September, it eclipsed an inflation-adjusted peak set 45 years ago. Photo by Chris Ratcliffe/Bloomberg/Postmedia files

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Spot gold edged below US$4,320 an ounce, while silver slid toward US$70. The two have seen exceptional volatility in thin post-holiday trading, plunging Monday before recovering Tuesday and dropping again Wednesday. The big swings prompted exchange operator CME Group to raise margin requirements twice.

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Both metals are still on track for their best year since 1979, supported by strong demand for haven assets amid mounting geopolitical risks, and by successive interest-rate cuts by the United States Federal Reserve. The so-called debasement trade — triggered by fears of inflation and swelling debt burdens in developed economies — has helped supercharge the scorching rally.

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In gold, the bigger market by far, those factors spurred a rush by retail investors and institutional money managers into bullion-backed exchange-traded funds, while central banks extended a years-long buying spree.

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Gold is up about 64 per cent in the past 12 months. In September, it eclipsed an inflation-adjusted peak set 45 years ago — a time when U.S. currency pressures, spiking inflation and an unfolding recession pushed prices to US$850. This time around, the record run saw prices smash through US$4,000 in early October.

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“In my career, it’s unprecedented,” said John Reade, a market veteran and chief strategist at the World Gold Council. “Unprecedented by the number of new all-time highs, and unprecedented in the performance of gold exceeding the expectations of so many people by so much.”

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Silver has notched up a gain of almost 150 per cent during the year, driven by speculative buying but also by industrial demand, with the metal used extensively in electronics, solar panels and electric cars. In October, it soared to a record as tariff concerns drove imports into the U.S., tightening the London market and triggering a historic squeeze.

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The new peak was then passed the following month as U.S. rate cuts and speculative fervor drove prices higher, and the rally topped out above US$80 earlier this week — in part reflecting elevated buying in China.

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Yet the latest move swiftly reversed, with the market closing down nine per cent on Monday then swinging the following two days. In response to the extreme volatility, CME Group again raised margins on precious-metal futures, meaning traders must put up more cash to keep their positions open. Some speculators may be forced to shrink or exit their trades — weighing on prices.

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“The key driver today is the CME raising margins for the second time in just a few days,” said Ross Norman, chief executive officer of Metals Daily, a pricing and analysis website. The higher collateral requirements are “cooling the markets off,” he said.