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This Market Is Not Normal; Volatility Is Here to Stay

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Regarding the sharp sell off on Wednesday, Hug lays the blame on lots of long positions that needed lightening ahead of the Fed announcement.

“They were just making sure that if the Fed said something different…they would be able to take some money off the table. And I think that caused the selling today,” said Peter Hug, head of Kitco’s precious metal division.

Hug spoke to Kitco News on Wednesday.

Yesterday, selling pressure in the gold market picked up as the minutes from the July monetary policy meeting showed some reluctance by the Fed to cap bond yields. Gold futures were the most active on the news. On Wednesday the December contract lost $78.90, a total decline of 3.92%, and is currently fixed at $1934.20. Silver had a larger percentage gain giving up 4.77% which is a decline of $1.34, with the September futures contract currently fixed at $26.735.

This is on top of last week’s volatility when gold tumbled nearly $200, the biggest decline in seven years.

Regarding physical inventory, Hug said gold is relatively stable while premiums are still exaggerated on the silver side. The allocations coming out of the mints are in insignificant to meet the demand.

Hug warned that volatility will be staying with us for a while.

“This is a market that you can't call normal. We’re uncertain if COVID-19 is going to come back. We are uncertain whether there is going to be a fiscal stimulus. There are so many unknowns. It makes sense to hold precious metals in your portfolio, but to trade this market has become extremely difficult,” said Hug.

Hug said little has changed at the Fed.

“They're a little worried that they don't have a lot of ammunition left. They’re at zero rate. They can maneuver on their bond purchases, but I think they're looking for some leadership from the government to create more fiscal stimulus,” said Hug.

“Every day seems to be like Groundhog day here,” said Hug.

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