Gold rose for a second day, rebounding above $5,000 an ounce as dip buyers snapped up precious metals following a historic collapse from record highs.”
“Bullion climbed as much as 2.9% on Wednesday, after gaining more than 6% in the previous session.” Despite the rebound, “the yellow metal is more than $500 below the all-time high hit on Jan. 29, but remains up around 17% for the year.” “Silver also advanced.”
According to TD Securities, the worst of the selling pressure may now be over. “Forced sales have likely run their course in precious metals,” said Daniel Ghali, “a senior commodity strategist at TD Securities,” adding that “the intense volatility over the last week could certainly keep retail participants on the sidelines, removing an increasingly important cohort of buyers.”
Rally Loses Steam After Rapid Gains
“Precious metals soared last month in a rally underpinned by speculative momentum, geopolitical upheaval and concerns about the Federal Reserve’s independence.” However, “market watchers warned that the advances had been too large and too swift.”
“The surge came to a sudden halt at the end of last week,” with “silver seeing its biggest daily drop on record and gold plunging the most since 2013.”
“Chinese funds and Western retail investors had built up large positions in precious metals,” while “further fuel was added by investors piling into leveraged exchange-traded products and a wave of call-options buying.” The selloff accelerated when “a sudden collapse during Asian trading hours on Friday continued into the early part of this week.”
Losses Cascade as Hedging Turns
Goldman Sachs analysts described how the decline unfolded. “As prices fell, dealer hedging flipped from buying into strength to selling into weakness, investor stop-outs were triggered, and losses cascaded through the system,” wrote analysts “including Lina Thomas.”
Investor confidence also showed signs of strain in China. “Mainland China’s four largest gold-backed exchange-traded funds saw combined outflows of nearly $1 billion on Tuesday,” data compiled by Bloomberg showed. This marked “the biggest ever one-day decline,” after “the same ETFs were notching record inflows” just a week earlier.
Banks Stick With Bullish Outlook
Even after the sharp correction, “investors and analysts believe the fundamentals that drove bullion to record highs remain intact.” Fidelity Fund, which “sold a chunk of gold holdings days before the plunge,” is now “watching for an opportunity to buy again,” portfolio manager George Efstathopoulos said.
Several major banks remain optimistic. “Deutsche Bank AG said on Monday that it was standing by its forecast for bullion to rally to $6,000 an ounce.” Goldman Sachs also said it sees “significant upside risk” to its “year-end forecast of $5,400.”
Bank of America expects continued turbulence. “Volatility in precious metals will remain elevated,” the bank said, noting that “gold has a stronger, longer-term investment thesis than silver.” While “inflated prices and market turmoil may affect position sizing,” they “won’t dampen overall investor interest.”
Geopolitics and Dollar Movements
Gold has also found backing from global tensions. “Bullion has drawn support from geopolitical tensions, as strains between the America and Iran intensified following the US Navy’s downing of an Iranian drone.” At the same time, “President Donald Trump reiterated that diplomatic talks between the two countries are ongoing.”
“Bullion was higher an ounce as of in London.” “Silver advanced,” while “platinum and palladium also gained.” Meanwhile, “the Bloomberg Dollar Spot Index, a gauge of the US currency, rose 0.2%.”
