Gold, silver ETFs rebound up to 10% after massive crash as precious metals recover: What lies ahead?

Gold and silver ETFs

• Gold and silver ETFs rebounded after a recent sharp technical correction.
• Gold futures rose nearly 4 percent; silver futures rallied almost 9 percent
• Analysts: Long-term drivers for precious metals intact despite volatility

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Gold and silver exchange traded funds (ETFs) rebounded on February 3 after seeing a massive crash during the past few sessions. This comes as precious metals rebounded from their lows.

Analysts have said that such a “violent” drop in the precious metals was more like a technical correction than a deterioration in core fundamentals, and that the longer term drivers remain intact.

Gold, silver prices recover:

Gold futures with March expiry on the MCX jumped nearly 4 percent to nearly hit the Rs 1.5 lakh per 10 grams mark. This comes after the contracts significantly dropped after hitting a fresh lifetime high of Rs 1,93,096 per 10 grams last week.

The futures with June expiry also rose 4 percent to Rs 1,52,551 per 10 grams.

Silver futures with March expiry meanwhile rallied nearly 9 percent to Rs 2,57,480 per 10 grams. The futures had significantly fallen after hitting a Rs 4,20,048 per 10 grams.

Gold, silver ETFs recover:

HDFC Silver ETF jumped nearly 10 percent in the early trading hours, while Mirae Asset Silver ETF, SBI Silver ETF, Tata Silver ETF, Groww Silver ETF, UTI Silver ETF anf several others also gained up to 10 percent.

Invesco India Gold ETF and Groww Gold ETF gained around 5 percent, while Baroda BNP Paribas Gold ETF, Axis Mutual Fund Gold ETF, HDFC Gold ETF, Nippon India Gold ETF and few others gained around 4 percent each.

Why are gold and silver prices rising today?

A dramatic unwind which hit gold and silver markets over the past two days, erased a chunk of their record breaking January gains. The plunge began after CME Group hiked margin requirements on both metals, forcing leveraged traders to liquidate positions and accelerating a wave of selling. In additions, the selloff intensified as markets digested reports that US President Donald Trump is set to nominate Kevin Warsh—viewed as a hawkish, dollar supportive choice—as the next Federal Reserve Chair. The shift revived expectations of tighter policy and triggered a sharp rebound in the U.S. dollar, which is negative for precious metals.

“The correction was amplified by extreme overbought conditions after gold and silver touched unprecedented highs just days earlier, with silver having surged more than 60% in a month and gold over 20%. Profit taking cascaded into panic selling as liquidity thinned and volatility spiked,” said Hareesh V, Head of Commodity Research, Geojit Investments.

“The violent drop more like a technical correction than a deterioration in core fundamentals, noting that longer term drivers—geopolitical tensions, central bank buying and macro uncertainty—remain intact,” he added.

"It's a reasonable call that this is somewhere around fair value potentially, if you consider that we saw a market behaving fairly irrationally for a few weeks there," Reuters quoted Kyle Rodda, a senior market analyst at Capital.com, as saying.

The sharp rise in the precious metals also comes amid rising expectations for at least two rate cuts by the American Federal Reserve this year.

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