Precious metals are being hit hard Wednesday—gold, silver, platinum and palladium all caught in the wave of selling.
The main reason traders cite for the sell-off is the weaker euro and stronger dollar , making dollar denominated metals more expensive to own. But, there are other factors at play here as well.
After a less than stellar year traders say hedge funds are seeing redemptions. “Everybody wants cash, liquidity is thin” says Bruce Dunn, Auramet Trading Senior Vice President.
Metals have “broken all the levels” and it’s a kind of “get me out” mentality playing out in the markets right now.
Banks are also looking to metal inventories for cash through lending gold on swap agreements with other banks. Normally, banks with gold can usually borrow dollars against their gold holdings for less than they can borrow dollars outright. That is not the case right now.
Traders say banks are lending gold (i.e. borrowing dollars) at a premium to dollars rates and this causes a negative lease rate, an unusual situation which implies underlying concerns about counterparty risk in the system. “I can’t lend—platinum, palladium, rhodium—even silver is getting to full carry,” says Dunn.Page 1 of 2 | Next Page