Gold claws back some ground after dramatic unwinding of rally

Precious metals had plunged from record highs that shocked even seasoned traders

• Gold rebounded 4.2% after a sharp two-day drop, silver also advanced over 8%
• Markets remain volatile as they reassess risk appetite after recent swings.
• Chinese buyers boosted gold demand before Lunar New Year, impacting market trends.

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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 rose as much as 8.1% – taking it above $85 and erasing the previous day’s loss – before paring gains.

“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.”

Precious metals had plunged from record highs that shocked even seasoned traders. An already-scorching rally accelerated sharply last month, as 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. At Monday’s close, gold was 17% below the all-time peak of $5,595.47 hit on Jan. 29, while silver had declined by more than a third.

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.

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.

“Both the violent selloff and equally sharp recovery underscore a hypersensitive market driven by abrupt, headline-led emotion rather than clear direction, leaving sharp and uncomfortable volatility as the near-term norm,” Hebe Chen, an analyst at Vantage Markets in Melbourne said by email.

Gold rose 3% to $4,799.77 an ounce at 11:50 a.m. in Singapore. Silver advanced 4.6% to $82.91 an ounce, while platinum and palladium also climbed. The Bloomberg Dollar Spot Index, a gauge of the US currency, edged down 0.2% after ending the previous session 0.3% higher.