Editor’s Note
After a sharp sell-off driven by Wall Street volatility and technical factors, precious metals have found a tentative floor. The market’s focus now shifts squarely to upcoming U.S. inflation data and the Federal Reserve’s policy path, which will likely determine the next significant move for gold and silver prices.
After a sharp retreat, the gold price stabilized below $5,000 as investors eagerly awaited fresh US inflation data and potential interest rate cuts from the Federal Reserve. Earlier, Wall Street turbulence, margin calls, and algorithmic trading had created massive selling pressure on gold and silver.
The gold price recovered after an abrupt plunge in the previous trading session. Silver also stabilized after the white metal temporarily fell by 10%. Bargain hunters took advantage of the lower prices ahead of the release of key US inflation data.
On Friday, the spot price for gold rose by up to 1.4% at times, after the precious metal had lost 3.2% the previous day – the strongest daily loss within a week. According to a Bloomberg report, the sudden decline coincided with significant distortions on Wall Street. Numerous sectors there came under pressure as investors reassessed the potential impact of Artificial Intelligence on corporate profits and used this as a reason to sell.
The correction in silver and gold prices was likely further amplified by margin calls and algorithmic trading strategies. When investors are forced to cover losses in other asset classes, liquid positions such as gold are often sold to post additional collateral.
According to Liu Shiyao, an analyst at Zijin Tianfeng Futures, the sell-off in US stock markets spilled over to precious metals. Investors with broadly diversified portfolios had to sell commodities to meet margin calls.
Michael Ball, a macro strategist at Bloomberg, also sees systematic trading models as amplifiers of the downward movement. In particular, so-called Commodity Trading Advisors (CTAs), which rely on computer-based trend models, may have accelerated the dynamics.
Additionally, profit-taking played a role. Silver lost more than 10% on Thursday. After the historic correction at the turn of the month, gold and silver initially recovered – the subsequent high volatility favored short-term position closures. Despite the strong fluctuations, the gold price is heading for an overall almost unchanged weekly balance.
Now investors’ attention is turning to the upcoming US inflation figures. They are considered indicative for the further monetary policy of the Federal Reserve.
Robust US labor market data for January had previously dampened expectations that the Fed would cut interest rates again by mid-year. Falling key interest rates are traditionally seen as a positive driver for precious metals, as gold itself yields no ongoing returns and becomes relatively more attractive in a low-interest environment.
Hedge fund manager David Einhorn stated in a CNBC interview that he expects significantly stronger interest rate cuts than are currently priced in by the market.
On January 29, the gold price reached a new all-time high of over $5,595 per ounce. This peak marked the provisional high point of a multi-year rally, which had recently been additionally fueled by speculative buying. In the two subsequent sessions, however, the gold price fell by around 13%.
Despite this correction, numerous banks expect a resumption of the long-term uptrend. Persistent geopolitical tensions, discussions about the independence of the US Federal Reserve, and a structural shift away from traditional asset classes such as currencies and government bonds are considered key drivers.
BNP Paribas forecasts a gold price of $6,000 by year-end. Deutsche Bank and Goldman Sachs are also optimistic.
At 6:40 a.m. in Frankfurt, spot gold was quoted 1% higher at $4,971.44 per ounce. Silver rose 1.5% to $76.60. Platinum and palladium also gained, while the Bloomberg Dollar Index increased slightly by 0.1%.
FMW/Bloomberg