Gold rose, clawing back some losses after the abrupt unwinding of a record-breaking rally that had driven prices down 13% in just two days. Silver also advanced.
Spot gold climbed as much as 4.2% to over $4,855 an ounce, after falling 4.8% in the previous session to extend a slump on Friday that was the steepest in more than a decade. Silver climbed as much as 8.1% to top $85, after sliding 7% on Monday and posting a record intraday drop on Jan. 30.
Precious metals surged to records last month in a rapid ascent that caught even seasoned traders by surprise. Investors piled into gold and silver on renewed concerns about geopolitical upheaval, currency debasement, and threats to the Federal Reserve's independence. A wave of buying from Chinese speculators supercharged the rally, but this flipped on Friday as the US dollar rebounded.
The extent to which Chinese investors choose to buy the dip will play a key role in determining the direction of the market. Over the weekend, buyers flocked to the country's biggest bullion marketplace in Shenzhen to stock up on gold 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 holidays. The country's major state-owned banks are tightening controls on gold investments to manage the volatility.
“The foundations supporting gold today are largely unchanged from those that prevailed prior to the correction on Friday,” Ahmad Assiri, a market strategist at Pepperstone Group Ltd. said by email. “That said, volatility is likely to remain heightened in the near term as markets continue to digest the recent dislocation and reassess risk appetite.”
Some banks have backed gold to recover, with Deutsche Bank AG saying in a note on Monday that it was standing by its forecast for bullion to rally to $6,000 an ounce.
Investors are also monitoring the situation in Iran, after US President Donald Trump said talks over a new nuclear deal could happen in coming days. A diplomatic breakthrough could diminish some of gold's appeal as a safe-haven investment and pressure prices.
Gold rose 3.2% to $4,808.63 an ounce at 10:07 a.m. in Singapore. Silver advanced 6.1% to $83.1 an ounce, while platinum and palladium also climbed. The Bloomberg Dollar Spot Index, a gauge of the US currency, edged down 0.1% after ending the previous session 0.3% higher.
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