Following a week of significant volatility in the precious metals market, bargain hunters have re-entered, driving the price of gold back above $5,000 per ounce during early Asian trading on February 9th. Last Friday, the U.S. dollar retreated from a two-week high, providing some support for gold, which closed with a gain of approximately 4% for the day and a weekly increase of 1.9%. Simultaneously, silver also rebounded from a one-and-a-half-month low.
Spot gold rose by as much as 1.7% in early Monday Asian trading. The election victory of current Japanese Prime Minister Takaichi Sanae also provided a boost to gold prices. Her win has reinforced market expectations for continued loose fiscal policy and sustained pressure on the Japanese yen, factors which are seen as supportive for gold as investors seek a more reliable store of value. Additionally, lingering concerns over U.S.-Iran negotiations, which have failed to effectively de-escalate conflict risks, have maintained a baseline level of safe-haven sentiment in the market, limiting the depth of any potential decline for gold.
Precious metal prices experienced a sharp drop from historic highs late last month, as the preceding record-breaking rally appeared to have become overextended. By Friday's close, the gold price was down approximately 11% from the all-time high set on January 29th, although it remains up 15% for the year to date. Prior to this, the multi-year bull market accelerated in January, with a wave of speculative investment adding fuel to a market already rising due to heightened geopolitical tensions and a revival of currency debasement trades. Investors sold sovereign bonds and currencies, shifting their allocations towards hard assets like gold.
Despite a week of fluctuations following the historic plunge, gold has managed to recover roughly half of its losses. Some bargain-hunting capital views the correction as relatively sufficient and has begun to establish positions, providing the most direct impetus for gold's rebound. This week, the U.S. will release two major economic reports—the Non-Farm Payrolls and CPI data. These figures will directly shape market expectations regarding the timing and path of Federal Reserve interest rate cuts and will be crucial in determining whether gold can resume a strong upward trajectory.
The current recovery in gold prices, reclaiming some of the post-plunge losses, indicates solid underlying buying support. However, significant resistance is also present near the previous highs from sellers who bought at those elevated levels. Ahead of the data releases, the market is likely to maintain a pattern of high-level consolidation as it awaits a clear directional signal. The potential for gold to initiate another wave of strong new highs exists, as it retains long-term potential, but a new macroeconomic "catalyst" is likely needed in the short term.
Long-term core supportive factors provide a stabilizing foundation. Central banks continue to be net buyers of gold; for instance, the Chinese central bank has increased its gold holdings for 15 consecutive months, underscoring the long-term trends of de-dollarization and reserve diversification. This provides the gold market with its most solid and stable base of demand, instilling confidence that declines will find a floor. Furthermore, major institutions remain bullish long-term. Banks such as Deutsche Bank and Goldman Sachs have reiterated their positive outlooks, refocusing market attention from short-term volatility to long-term drivers like global debt levels and currency hedging, which helps stabilize market sentiment.
Therefore, the current rebound in gold represents a convergence of technical recovery after a sharp fall and its long-term positive fundamentals. However, the sustainability and magnitude of this move this week are contingent on the performance of key U.S. economic data. Until the CPI and jobs data are released, a cautious approach to the rebound is advisable, as the market will likely be in a high-volatility, event-driven state, making it unwise to chase prices higher. Investors could view the current price range as an area for gradual, phased positioning but should maintain patience and be prepared to accept market fluctuations.