Gold and silver rebounded after a historic collapse from all-time highs lured dip-buyers back to precious metals.
Spot gold climbed as much as 6.2% to more than $4,950 an ounce, recovering somewhat from its worst rout in more than a decade. Silver rose more than 12% — trading above $89 an ounce — as a risk-on tone returned to wider markets and the US dollar weakened.
Photo Credit: Bloomberg
The two precious metals soared last month in a rally underpinned by speculative momentum, geopolitical upheavals and concerns about the Federal Reserve's independence. The surge came to an abrupt halt at the end of last week, with silver seeing its biggest daily drop on record and gold plunging the most since 2013, after a slew of warnings from market watchers that the advances had been too large and too swift.
Chinese funds and Western retail investors had built up large positions in precious metals, and a wave of call-options buying and investors piling into leveraged exchange-traded products added further fuel, until a sudden collapse during Asian trading hours on Friday. The slide continued on Monday.
“We think this correction will be healthy for the market in the long run,” UBS Group AG strategist Joni Teves wrote in a note. “This period should provide investors the opportunity to build long-term strategic positions at more attractive entry levels.”
Most banks have backed gold to recover, with Deutsche Bank AG saying on Monday that it was standing by its forecast for bullion to rally to $6,000 an ounce.
The extent to which Chinese investors buy the dip will play a role in determining the direction of the market. Last weekend, buyers flocked to the country's biggest bullion marketplace in Shenzhen to stock up on jewelry and bars ahead of the Lunar New Year. China's markets will be closed for just over a week from Feb. 16 for the break. The country's major state-owned banks, meanwhile, are tightening controls on gold investments to manage volatility.
What Bloomberg's Strategists Say...
“Gold's 3-day plunge was very much a correction waiting to happen, but the fundamental drivers for its multi-year advance are still in play to argue against a sustained tumble for precious metals. Given the unlikelihood of a rapid tightening cycle of monetary policy globally and lingering geopolitical concerns, a more modest grind higher for precious metals looks likely.”
—Garfield Reynolds, MLIV Asia Team Leader.
Gold rose 6.6% to $4,968.61 an ounce at 11:23 a.m. in New York. Silver advanced 12.1% to $88.84, while platinum and palladium both climbed. The Bloomberg Dollar Spot Index, a gauge of the US currency, slipped 0.3%.
Investors are also monitoring tension between the US and Iran, after President Donald Trump said talks over a new nuclear deal could happen in coming days. A breakthrough could diminish some of gold's appeal as a haven and pressure prices.
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