Editor’s Note
This article highlights a broker’s warning about deteriorating conditions in the precious metals market, citing extremely low liquidity and widening spreads. Readers should be aware that such volatility can lead to rapid adjustments in trading costs and terms.
OANDA Japan flagged “extremely low liquidity” and rapidly widening spreads as primary concerns. The broker warned that margin rates and funding costs for both gold and silver CFDs may be adjusted without advance notice due to deteriorating market conditions.
Transaction costs with counterparties have risen sharply as volatility persists. Gold dropped more than 3% during Thursday’s session, falling back below $5,000, before climbing 1% Friday to trade near $4,980.
The gold restrictions follow similar emergency measures OANDA Japan imposed on silver trading on January 29. That intervention slashed maximum silver leverage from 20:1 to 5:1 and cut position limits by 75% as silver climbed toward $120 per ounce.
Both moves come after a historic market crash that began January 30 erased an estimated $7.4 trillion in precious metals market value. Gold plunged 9-12% in a single day, while silver suffered its worst daily drop since 1980, falling 26-31%.
The Chicago Mercantile Exchange switched to percentage-based margin calculations in January as the rally intensified, while liquidity provider Scope Prime adjusted spreads in response to the CME changes.
Trading activity at broker Axi has been dominated by gold contracts as retail interest more than doubled during the recent price surge. CFD broker ACCM reported record January trading volume of $285 billion, with gold accounting for over 67% of the total.
However, some executives have raised concerns about the sustainability of the rally. Scope Markets EU CEO Constantinos Shakallis warned that Wall Street’s $6,000 price targets may be luring retail traders into a speculative trap similar to 1980’s gold crash.
Wells Fargo dramatically upgraded its year-end gold forecast to $6,100-$6,300 earlier this month as China’s central bank extended its gold buying spree for a 15th consecutive month.