Gold prices recovered some lost ground after a sharp sell-off in the previous session, with bargain hunters entering the market ahead of crucial US inflation data.
On Friday, gold rose by as much as 1.5%, following a 3.2% drop in the prior trading session, which marked its largest single-day decline in a week. This downturn coincided with a wave of panic on Wall Street, where asset prices broadly fell due to concerns about artificial intelligence's impact on corporate earnings. Margin calls and algorithmic trading likely exacerbated the pullback in gold.
An analyst from Zijin Tianfeng Futures noted that the sell-off in US stocks spread to the precious metals market, forcing some investors holding multiple asset classes to liquidate commodity positions to meet margin requirements. "In many cases, investors hold these assets simultaneously: when one asset class is sold off, another faces redemption pressure," she said. "However, this impact is not expected to be substantial, as gold is currently in a consolidation phase."
A Bloomberg macro strategist suggested that heavy selling by Commodity Trading Advisors, who use computer models to bet on price trends, may have intensified the correction.
Some of the recent selling in gold and silver, which plunged nearly 11% on Thursday, may also stem from profit-taking. After recovering partially from a historic slump earlier in the month, precious metals have experienced exceptionally volatile trading. Despite the price swings, gold is expected to finish the week largely unchanged.
Investors are focusing on US inflation figures due later on Friday, which could influence market expectations for the Federal Reserve's next policy moves. Strong January employment data released this week reduced the urgency for the Fed to implement additional interest rate cuts mid-year. Lower interest rates are a positive factor for non-yielding precious metals.
A prominent hedge fund manager stated on Wednesday that he expects the Fed to cut rates "significantly more than the market currently anticipates." He added that Kevin Warsh, nominated by former President Trump to replace current Fed Chair Jerome Powell, would likely implement policies favoring low borrowing costs as desired by the administration.
On January 29, gold hit a record high above $5,595 per ounce, capping a multi-year rally that had become overheated due to a surge in speculative buying the previous month. Over the following two sessions, prices plummeted approximately 13%.
However, several banks anticipate gold will resume its upward trajectory, citing persistent factors that initially drove the rally—including geopolitical tensions, questions about Fed independence, and a global shift away from traditional assets like currencies and sovereign bonds. ANZ Group joined the bullish camp on Friday, raising its price forecast and predicting gold will reach $5,800 per ounce in the second quarter.
"While recent volatility raises questions about whether gold has peaked, we believe the rally is not yet mature and is unlikely to reverse in the near term," ANZ analysts stated in a report.
As of 2:00 PM Beijing time, spot gold was up 0.5% at $4,946.81 per ounce; silver rose 1.2% to $76.19; platinum and palladium also advanced. The Bloomberg Dollar Spot Index, which measures the greenback's strength, edged up 0.1%.