Gold prices advanced for a second consecutive day, rebounding above $5,000 per ounce as bargain hunters swooped in to acquire the precious metal following its dramatic collapse from record highs.
Buoyed by a return of risk appetite in markets and a weakening US dollar, the price of gold climbed nearly 3% on Wednesday, after surging over 6% in the previous trading session. Although the yellow metal remains approximately 10% below the all-time peak set on January 29th, it has still accumulated a gain of around 17% for the year. Silver prices also moved higher in tandem.
Daniel Ghali, a senior commodities strategist at TD Securities, noted in a report, "The forced selling in precious metals may have concluded." However, he also pointed out that "last week's extreme volatility will likely keep retail participants on the sidelines, removing an increasingly important group of buyers."
Last month, precious metal prices soared, supported by speculative momentum, geopolitical instability, and concerns over the Federal Reserve's independence. Nevertheless, market observers had warned that the rally was excessive and too rapid. This momentum came to an abrupt halt over the weekend, with silver posting its largest single-day decline on record and gold experiencing its most significant drop since 2013.
Investors had built substantial positions in precious metals, a trend further fueled by inflows into leveraged exchange-traded products (ETPs) and a wave of call option buying. However, the sector suddenly crashed during Asian trading hours last Friday, with the selling pressure persisting into the start of this week.
According to data compiled by Bloomberg, the four largest gold ETFs in China saw outflows of nearly $1 billion on Tuesday, marking the largest single-day decline on record. This stands in stark contrast to the previous week, when the same ETFs were attracting funds at a record pace.
Bank of America anticipates that volatility in precious metals will remain elevated. Niklas Westermark, the bank's head of EMEA commodities trading, stated that gold possesses a stronger, more long-term investment thesis compared to silver. He suggested that while elevated prices and market turbulence might affect position sizing, they are unlikely to dampen overall investor interest.
The view that gold prices will rebound is supported by many banks. Deutsche Bank reiterated on Monday its forecast for gold to reach $6,000 per ounce. Analysts Lina Thomas and Daan Struyven at Goldman Sachs Group indicated in a report that they see "significant upside risks" to their year-end target of $5,400.
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