Gold Prices Rebound After Historic Selloff

(Bloomberg) — Gold prices increased for the second consecutive day, climbing back above $5,000 an ounce as market participants bought into the precious metal following a significant selloff from its record highs.

The price of bullion jumped by as much as 2.1% during early trading, adding to a more than 6% rise from the previous day. This uptick came as market sentiment turned more optimistic, particularly as the US dollar weakened. By the close on Tuesday, gold was approximately 12% below its all-time high from January 29, yet it had increased nearly 15% since the beginning of the year. Silver showed similar positive shifts.

“The forced sale of precious metals has likely run its course,” commented Daniel Ghaly, a senior commodity strategist at TD Securities. He noted that last week’s volatility could leave retail investors hesitant and perhaps diminish this crucial buying demographic.

Prices for precious metals surged last month, driven by speculation, geopolitical unrest, and worries about the Federal Reserve’s independence. However, some analysts cautioned that the pace of these changes was unsustainable. The previous weekend saw silver face its largest one-day decline on record, while gold experienced its steepest drop since 2013.

Both Chinese funds and Western retail investors have amassed significant positions in precious metals, largely through leveraged exchange-traded products and call options. The dramatic selloff began during Asian trading hours on Friday and bled into early this week.

As volatility in precious metals is expected to remain high, Bank of America indicated that gold holds a stronger long-term investment appeal compared to silver. Nicklas Westermark, leading commodity trading in EMEA at BofA, remarked that while price volatility may alter position sizes, overall interest from investors is unlikely to wane.

Many financial institutions are optimistic about a recovery for gold, with Deutsche Bank reaffirming its prediction of bullion reaching $6,000 an ounce.

As of 9:12 a.m. in Singapore, gold had risen 2.1% to $5,048.55 an ounce, while silver also gained 2.1%, reaching $86.90. Additionally, both platinum and palladium saw price increases. The Bloomberg Dollar Spot Index, which measures the U.S. currency, rose by 0.1% after having closed 0.3% lower in the previous session.