Editor’s Note
This article discusses a significant rebound in gold prices, driven by renewed investor interest and favorable market conditions.
Gold has risen for the second consecutive day, recovering above $5,000 per ounce after investors used the sharp price decline to re-enter the precious metals market.
In early trading, the gold price rose by up to 2.8% to $5,085, after the precious metal had already gained more than 6% in the previous session. The reasons for this were a renewed increase in risk appetite in the markets and a weaker US dollar. At the close of trading on Tuesday, gold was about 10% below the all-time high of January 29th, but was still up almost 15% since the beginning of the year. Silver also rose temporarily to over $88.
Precious metals remain extremely volatile.
Last month, precious metals rose sharply, supported by speculative momentum, geopolitical tensions, and concerns about the independence of the US Federal Reserve. However, just before the crash, there were some warning signs, and market observers had warned early on that the price gains had been too large and too fast.
The rally came to an abrupt halt at the end of last week: Silver recorded its largest single-day loss in history, while gold experienced its sharpest decline since 2013.
Chinese funds and Western private investors had previously built up massive positions. Additional momentum came from investments in leveraged exchange-traded products (ETPs) and a wave of call option purchases. The sudden price drop during Asian trading on Friday continued into the beginning of this week.
According to Bank of America, volatility in precious metals is likely to remain high. However, gold has a significantly stronger long-term investment story than silver, said Niklas Westermark, Head of EMEA Commodity Trading at BofA. While excessive prices and market turbulence could affect position sizes, general investor interest will not wane.
Many banks continue to expect a recovery in the gold price. Deutsche Bank reaffirmed its forecast on Monday that gold could rise to $6,000 per ounce in the medium term.
Gold was last quoted at $5,079.55 per ounce (as of 6:30 a.m. in Frankfurt), a gain of 2.7%. Silver also rose by more than 3% to $88.20. Platinum and palladium also gained. The Bloomberg Dollar Spot Index, a measure of the strength of the US dollar, was up 0.1%, after having lost 0.3% the previous day.