Precious Metals Prices Rebound After Previous Sell-Off
On Tuesday, prices for precious metals bounced back after a significant decline that started following last week’s impressive rally.
Gold saw an increase of over 3% during Asian trading, reaching $4,822 per troy ounce, while silver climbed 5.3% to hit $83.50 per troy ounce.
“People are just buying in the moment,” noted Yushuan Tan, who is in charge of Asia macro strategy at JPMorgan Private Bank. “This is typical after a 20% drop.”
The downward trend for precious metals began on Friday when U.S. President Donald Trump nominated Kevin Warsh for the role of Federal Reserve Chairman, leading to gold closing 9% lower—its largest single-day drop in over four decades.
Warsh’s nomination is viewed as a more conventional choice by investors, easing concerns regarding the Fed’s independence as Trump pushes for lower borrowing rates. He has criticized Fed Chairman Jay Powell, calling him a “stubborn mule” for not supporting additional interest rate cuts.
Gold prices dipped as much as 10% during Asian trading on Monday, but recovered when London and New York markets opened. Analysts suggested that the initial plunge was driven by significant borrowing by regional investors speculating on rising prices.
Investors who had taken out loans for speculations faced margin calls, forcing them to sell off some assets to raise funds.
Asian markets enjoyed a rally on Tuesday, rebounding from a drop in gold prices that had impacted the region’s stocks. South Korea’s benchmark Kospi ended down 5.3 cents on Monday but climbed over 5% on Tuesday.
In response to Friday’s drop, CME Group, the largest derivatives exchange globally, raised margin requirements for gold and silver futures. Investors believe that these increased requirements will lead to less borrowing and leverage from traders, affecting short-term prices.
According to JPMorgan’s Tan, Warsh’s appointment won’t fundamentally change their outlook on gold. The bank anticipates that gold prices will rise to $6,000-$6,300 per troy ounce by year’s end.
The initial surge in gold prices was fueled by central banks increasing their bullion purchases after foreign exchange reserves were frozen following Russia’s invasion of Ukraine. More recently, private investors have become more active, seeking a hedge against geopolitical risks and concerns about currency devaluation by developed nations.
“I think this amendment has cleared a lot of speculation,” Tan added. “It allows the market to reassess the fundamentals.”
The U.S. dollar slipped 0.2% against a basket of major currencies, while U.S. Treasury yields remained stable.
