Late at night! Gold and silver plummet sharply

On August 25th local time, US President Trump posted an open letter to Federal Reserve Governor Lisa Cook on the social media platform "Truth Social", announcing the immediate removal of her position. This move immediately sparked a huge controversy. After the above news was released, the US dollar index dropped sharply in a short period, and the price of London spot gold rose by more than $20 per ounce. On the evening of August 27th local time, the three major US stock indexes opened with mixed results. Spot gold suddenly experienced a shock and a sharp drop, falling below $3380 per ounce, and spot silver even dropped by more than 1%. If the gold price continues to fall and drops below $3370, the technical aspect will confirm the reversal of the trend, which may trigger further selling.

The sudden drop in gold and silver prices caught financial practitioners and investors off guard, and brought complex and multi-faceted impacts to the financial industry and related industries. First, it has an impact on investors. Gold and silver, as safe-haven assets, their price drop may lead investors to reduce their investment in these assets and seek other investment channels, such as stocks and bonds. This adjustment in asset allocation may increase the liquidity in other markets, thereby affecting the prices and volatility of these markets. For investors holding large amounts of gold and silver futures contracts, especially those using high leverage, the price drop may lead to a significant loss in their asset value, even facing the risk of bankruptcy. On the contrary, for short sellers, the gold and silver drop means a profit opportunity. They can sell gold and silver futures contracts to profit when the price falls. Some long-term investors who are optimistic about the value of gold and silver may view the price drop as a good buying opportunity, increase their allocation to expect a future price rebound and gain profits.

Second, it has an impact on the financial market. The drop in gold and silver may trigger panic among investors, leading to a chain reaction in other related futures varieties. For example, the prices of metals with high correlation to gold and silver may follow the decline. The stock prices of companies related to gold and silver are often impacted. Because the prices of gold and silver decline will affect the profit expectations of these companies, leading investors to sell stocks. In addition, the drop in gold and silver may reflect changes in market expectations for the macroeconomic situation, thereby affecting the pricing of other financial assets. The drop in gold and silver prices may affect the exchange rates of currencies related to gold and silver production and export. For example, countries such as Australia and South Africa, if the prices of gold and silver fall significantly, may lead to the depreciation of their currencies.

Third, it has an impact on related industries. The price drop will compress the profit margins of enterprises. Because the extraction costs are relatively fixed, while the selling prices decline, the profitability of enterprises weakens, which may lead some mines to reduce production or even close. The price drop may stimulate consumption, as consumers can purchase gold jewelry at a lower price. This may drive the sales growth of gold jewelry and promote the development of this industry. The fluctuation of gold and silver prices provides trading opportunities for investors. Investors can invest through financial tools such as futures, options, and gold ETFs to obtain returns from price fluctuations. However, the uncertainty of prices also increases investment risks.

Fourth, it has an impact on the macroeconomy. The drop in gold and silver may reflect market concerns about the economic outlook, thereby affecting the confidence of consumers and enterprises, and having a certain inhibitory effect on economic growth. The significant drop in gold and silver prices may trigger changes in market expectations for inflation. For example, if the drop in gold and silver prices is seen as a signal of economic improvement, it may reduce market expectations for inflation; conversely, if the drop in gold and silver prices is caused by concerns about economic recession, it may intensify market concerns about deflation.

In conclusion, the sudden plunge of gold and silver prices at night serves as a reminder that all elements of the financial market are closely interrelated. Any minor change can trigger widespread effects. Investors and market participants must always maintain a keen sense of observation to cope with potential market fluctuations and risk challenges.