Why did gold took a major dip on Friday? Get ready for major rise!
On Friday we saw where gold depreciated approximately 5%. This came at a surprise to most Fundamental Traders as gold is seen as the best investment, in times of uncertainty. But why did Gold decline on Friday? One simple explanation is Margin Call.
What is Margin Call? According to Investopedia; a margin call occurs when the value of an Investor's Margin Account, in other words; an account that contains securities bought with borrowed money, falls below the broker’s required account. A margin call is the broker's demand that on investor deposit additional money or securities so that the account is brought up to the minimum value, known as maintenance margin.
This year we have seen where the Coronavirus has significantly impacted the economy in China and around the world. In this time of uncertainty, we have seen where investors generated the majority of profits from gold. What we witnessed on Friday, is investors selling anything with bid and running for cover and that includes typical hedges such as gold. This is the result of investors cashing out profits for Margin Call. Investors showed a similar Behavior during the 2008 financial crisis; however, prices more than doubled from the lows thereafter.
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