On February 3, ATFX: Following President Trump's nomination of Kevin Warsh for the next Federal Reserve Chair last week, market expectations for interest rate cuts were jolted, causing gold prices to extend their largest single-day decline in over fifty years from the previous Friday. Monday's data showing improved US manufacturing economic activity, with the ISM reporting activity reaching its highest level since 2022, boosted yields and the US dollar, keeping gold prices below the $5,000 per ounce threshold.
Spot gold prices plummeted nearly 10% on January 30, marking the largest drop since 1983, falling below the historic $5,000 per ounce level breached just days earlier and erasing most of its gains for the year. Silver fell 27% during the same trading session, setting a record for its biggest single-day decline.
By the Asian trading session on Tuesday, gold and silver began a rebound as the market started to assess the sudden retreat from the previous record-breaking rally. Spot gold rose as much as 4.2%, surpassing $4,855 per ounce; silver surged up to 8.1%, breaking above $85 per ounce, after having fallen 7% on Monday and hitting a record intraday low on January 30. With the long-term uptrend still intact, gold prices remained above key technical support levels.
Despite the historic pullback in precious metals, resulting in the most severe two-day sell-off in decades, analysts believe the bull market for gold and silver will persist and anticipate new highs later this year. As of last Friday, total holdings in gold ETFs showed little change. Data compiled by Bloomberg indicated that holdings in the world's largest gold ETF, the SPDR Gold Trust, were largely flat, standing at 39.4 million troy ounces by Friday. Investors remained net buyers of gold ETFs throughout January.
Institutional analysts suggest this correction may curb speculative buying, thereby creating room for long-term strategic buyers to reallocate assets. Gold prices might experience a period of consolidation in the coming weeks and months before resuming their upward trajectory. JPMorgan stated on Monday that it expects gold to reach $6,300 per ounce by year-end. Deutsche Bank also reaffirmed its $6,000 price forecast for this year, citing persistently strong investor demand.
Last month, precious metal prices soared to record highs, with the rapid ascent surprising even seasoned traders. Investors flocked to gold and silver markets amid renewed concerns over geopolitical turmoil, currency devaluation, and perceived threats to the Federal Reserve's independence. The extent of buying by Chinese investors during price dips will be a crucial factor for the market's direction. Over the weekend, buyers swarmed into Shenzhen, China's largest gold and silver trading market, stockpiling gold jewelry and bars ahead of the Lunar New Year.
Investors are also closely monitoring the situation with Iran, after President Trump indicated that negotiations on a new nuclear deal could commence in the coming days. A diplomatic breakthrough could diminish gold's appeal as a safe-haven investment and put downward pressure on prices. The US January non-farm payrolls report, originally scheduled for release this Friday, has been postponed due to a partial US government shutdown. News related to the shutdown will also influence market risk sentiment and impact gold's trajectory; if combined with bargain-hunting, a rebound in gold could be reignited.
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